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Regulated Ornstein–Uhlenbeck Process in Pandemic-Time Asset Pricing of Stocks and Derivatives

Author

Listed:
  • Sulaiman Sani

    (Kwaluseni Campus)

  • Peter Y. Mhone

    (Kwaluseni Campus)

  • Mfundo Mhlongo

    (Kwaluseni Campus)

  • Onkabetse A. Daman

    (University of Botswana)

Abstract

We present properties of a uniquely designed Ornstein–Uhlenbeck process termed as regularly varying Ornstein–Uhlenbeck (regulated-OU) process and provide methods for transforming its sub-exponential tail in a dominated regime. We also demonstrate how the regulated-OU is suitable for modelling arbitrage-free price of assets and derivatives in pandemic times for market sustainability and high-level operational management.

Suggested Citation

  • Sulaiman Sani & Peter Y. Mhone & Mfundo Mhlongo & Onkabetse A. Daman, 2024. "Regulated Ornstein–Uhlenbeck Process in Pandemic-Time Asset Pricing of Stocks and Derivatives," SN Operations Research Forum, Springer, vol. 5(1), pages 1-11, March.
    • Handle: RePEc:spr:snopef:v:5:y:2024:i:1:d:10.1007_s43069-024-00293-0
    DOI: 10.1007/s43069-024-00293-0
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    References listed on IDEAS

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    1. Lo, Andrew W & Wang, Jiang, 1995. "Implementing Option Pricing Models When Asset Returns Are Predictable," Journal of Finance, American Finance Association, vol. 50(1), pages 87-129, March.
    2. Niels Joachim Gormsen & Ralph S J Koijen & Nikolai Roussanov, 0. "Coronavirus: Impact on Stock Prices and Growth Expectations," The Review of Asset Pricing Studies, Society for Financial Studies, vol. 10(4), pages 574-597.
    3. Albulescu, Claudiu Tiberiu, 2021. "COVID-19 and the United States financial markets’ volatility," Finance Research Letters, Elsevier, vol. 38(C).
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