This paper offers an option pricing framework grounded in econometric microstructure modelling. We consider a model where stock price dynamics follow a pure jump process with constant jump size similar to a binomial setting with random time steps. Jump arrival times are described as an Autoregressive Conditional Duration (ACD) process while conditional probabilities of up-moves and down-moves are given by the logistic transformation of an autoregressive prices. We derive no-arbitrage pricing formulae under the minimal martingale measure and illustrate the use of our Autoregressive Conditional Binomial (ACB) option pricing model on intraday IBM stock date.
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Paper provided by Financial Markets Group in its series FMG Discussion Papers with number
dp364.
Cited by: (explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)
GIOT, Pierre, 2000.
"Intraday value-at-risk,"
CORE Discussion Papers
2000045, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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