Market-Conform Valuation of Options

Download or read book Market-Conform Valuation of Options written by Tobias Herwig and published by Taylor & Francis. This book was released on 2006-01-17 with total page 120 pages. Available in PDF, EPUB and Kindle. Book excerpt: The focus of this volume is on the development of new approaches for the market-conform valuation of newly issued derivatives. The first chapter presents a flexible approach to construct the binomial process of the underlying asset price by using a simultaneously backward and forward induction algorithm. This framework can be used to price and hedge a wide range of plain-vanilla and exotic options. In the second chapter this new approach is compared to existing models using a sample of plain-vanilla options, American call options and European Barrier options from two competing markets. In the third chapter new methods to value American-style options via Monte Carlo simulations in accordance with given market prices are discussed. After a short introduction to Monte Carlo methods, two new approaches are proposed. These new frameworks are illustrated via pricing examples for standard American put options.