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Pricing European options on instruments with a constant dividend yield: The randomized discrete-time approach

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  • Rafal Weron

Abstract

Due to the well known fact that market returns are not normally distributed, we use generalized hyperbolic distributions for pricing options in a randomized discrete-time setup. The obtained formulas can be used for pricing options on stock indexes, currencies and futures contracts. We test them on options written on the Nikkei 225 index futures and conclude that a proper calibration scheme could give us an advantage in the financial market.

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File URL: http://www.im.pwr.wroc.pl/~hugo/RePEc/wuu/wpaper/HSC_02_04.pdf
File Function: Final draft, 2002
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File URL: http://www.math.uni.wroc.pl/~pms/files/22.2/Article/22.2.15.pdf
File Function: Final printed version, 2002
Download Restriction: no

Bibliographic Info

Paper provided by Hugo Steinhaus Center, Wroclaw University of Technology in its series HSC Research Reports with number HSC/02/04.

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Length: 13 pages
Date of creation: 2002
Date of revision:
Publication status: Published in Probability and Mathematical Statistics 22.2 (2002) 417-430.
Handle: RePEc:wuu:wpaper:hsc0204

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Related research

Keywords: Option pricing; Dividends; Randomization; Alternative models;

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  1. Aleksander Janicki & Aleksander Weron, 1994. "Simulation and Chaotic Behavior of Alpha-stable Stochastic Processes," HSC Books, Hugo Steinhaus Center, Wroclaw University of Technology, number hsbook9401.
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