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Option Pricing

In: Advanced REIT Portfolio Optimization

Author

Listed:
  • W. Brent Lindquist

    (Texas Tech University)

  • Svetlozar T. Rachev

    (Texas Tech University)

  • Yuan Hu

    (University of California San Diego)

  • Abootaleb Shirvani

    (Kean University)

Abstract

Call and put options provide a standard tool for hedging exposure to foreseeable risk. The pricing of options is inherently coupled to the price of the underlying asset, hence a model for pricing options must couple innately to the model for the underlying asset price. This chapter details option pricing based upon a so-called double subordination price model for the asset. Subordination models offer the ability to include more of the stylized facts of asset prices, increasing the accuracy of option prices. This chapter details the application of a double subordinated model to capture the mean, variance, skewness, and kurtosis, as well as intrinsic time features of the return process for one of the optimized domestic REIT portfolios.

Suggested Citation

  • W. Brent Lindquist & Svetlozar T. Rachev & Yuan Hu & Abootaleb Shirvani, 2022. "Option Pricing," Dynamic Modeling and Econometrics in Economics and Finance, in: Advanced REIT Portfolio Optimization, chapter 0, pages 197-226, Springer.
  • Handle: RePEc:spr:dymchp:978-3-031-15286-3_12
    DOI: 10.1007/978-3-031-15286-3_12
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