A Persistent Random Walk and Options Pricing

Start: 03/24/2011 - 4:15pm
End  : 03/24/2011 - 5:15pm

Statistics/OR/Math Finance Seminar

Harish Bhat, UC Merced


We define a persistent random walk as a modification of the simple random walk in which the direction and magnitude of the walker's step depends on the previous step. We first discuss the exact distribution, asymptotic behavior, and continuum approximation of this process. We then describe an arbitrage-free options pricing theory in which the underlying asset follows a persistent random walk. Comparisons between model and market prices will be made.

Harvey Mudd College, 3rd floor Sprague. Refreshments at 4pm.