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http://hdl.handle.net/11531/35856
Título : | Factorization of European and American Option Prices under Complete and Incomplete Markets |
Autor : | Ibañez Rodríguez, Alfredo |
Fecha de publicación : | 1 |
Resumen : | El precio de una opción Americana lo factorizamos en tres componentes: el precio de la cartera replicatente, un risk premium, y un early-exercise premium. In a standard option-pricing model, with continuous-trading and diffusion processes, this paper shows that the price of one European-style option can be factorized into two intuitive components: One robust, X0, which is priced by arbitrage, and a second, [Pi]0, which depends on a risk orthogonal to the traded securities. This result implies the following: (1) In an incomplete market, these parts represent the price of a hedging portfolio, which is unique, and a premium, which depends only on the risk premiums associated with the residual risk, respectively. (2) In a complete market, it allows factoring the contribution of the different sources of risk to the final option price. For example, in a stochastic volatility model, we can quantify the impact on the option price of volatility risk relative to market risk, [Pi]0 and X0, respectively. Hence, certain misspricings in option markets can be directly related to the premium, [Pi]0. (3) Moreover, these results extend to American securities, which have a third component - an additional early-exercise premium. |
Descripción : | Artículos en revistas |
URI : | http://hdl.handle.net/11531/35856 |
ISSN : | 0378-4266 |
Aparece en las colecciones: | Artículos |
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