COI code: MIEACONF02_026
Paper Language: English
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Authors Comparison of the Variance and Pricing ModelsFarhad Dehdar - Faculty Member of Shahrood Azad University
Mahdi Vassei Chaharmahali - Ph.D. student of Islamic Azad University, Shahrood Branch, and faculty member of Binalood Institute of Higher Education
Abstract:In this study, we test the empirical pricing performance of Constant–Elasticity-of-Variance (CEV) option pricing model by Cox (1975, 1996) and Cox and Ross (1976) and compare the future results with those by Bakshi, Cao and Chen (1997). CEV model, introducing only one more parameter compared with Black-Scholes formula, improves the performance notably in all the tests of in-future future sample, out-of-future future sample and the stability of implied volatility. Furthermore, with a much simpler model, the CEV model can still performs better than the stochastic volatility model in short term and out-of-the-money categories. The empirical evidence also shows that the CEV model has similar stability of implied volatility those models tested by Bakshi, Cao and Chen (1997). Therefore, with much less implementation cost and faster computational speed, the CEV option pricing model can be a better candidate than much more complex option pricing models, especially when one wants to apply CEV process for pricing more complicated path-dependent options or credit risk models.
Keywords:Pricing Model, Financial Market , risk models
COI code: MIEACONF02_026
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Dehdar, Farhad & Mahdi Vassei Chaharmahali, 2019, Comparison of the Variance and Pricing Models, 2th international conference on management, industrial engineering, economics and accounting, تفليس-گرجستان, دبيرخانه دائمي با همكاري دانشگاه امام صادق(ع), https://www.civilica.com/Paper-MIEACONF02-MIEACONF02_026.htmlInside the text, wherever referred to or an achievement of this article is mentioned, after mentioning the article, inside the parental, the following specifications are written.
First Time: (Dehdar, Farhad & Mahdi Vassei Chaharmahali, 2019)
Second and more: (Dehdar & Vassei Chaharmahali, 2019)
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