IDEAS home Printed from https://ideas.repec.org/p/arx/papers/1407.7315.html
   My bibliography  Save this paper

Effective and simple VWAP option pricing model

Author

Listed:
  • Alexander Buryak
  • Ivan Guo

Abstract

Volume weighted average price (VWAP) options are a popular security type in many countries, but despite their popularity very few pricing models have been developed so far for VWAP options. This can be explained by the fact that the VWAP pricing problem is set in an incomplete market since there is no underlying with which to hedge the volume risk, and hence there is no uniquely defined price. Any price, which is obtained will include a market price of volume risk which must be determined from the corresponding volume statistics. Our analysis strongly supports the hypothesis that the empirical volume statistics of ASX equities can be described reasonably well by fitted gamma distributions. Based on this observation we suggest a simple gamma process-based model that allows for the exact analytic pricing of VWAP options in a rather straightforward way.

Suggested Citation

  • Alexander Buryak & Ivan Guo, 2014. "Effective and simple VWAP option pricing model," Papers 1407.7315, arXiv.org.
  • Handle: RePEc:arx:papers:1407.7315
    as

    Download full text from publisher

    File URL: http://arxiv.org/pdf/1407.7315
    File Function: Latest version
    Download Restriction: no

    References listed on IDEAS

    as
    1. Bialkowski, Jedrzej & Darolles, Serge & Le Fol, Gaëlle, 2008. "Improving VWAP strategies: A dynamic volume approach," Journal of Banking & Finance, Elsevier, vol. 32(9), pages 1709-1722, September.
    2. Konishi, Hizuru, 2002. "Optimal slice of a VWAP trade," Journal of Financial Markets, Elsevier, vol. 5(2), pages 197-221, April.
    3. Alexander Novikov & Nino Kordzakhia, 2013. "On lower and upper bounds for Asian-type options: a unified approach," Papers 1309.2383, arXiv.org.
    4. Michael Curran, 1994. "Valuing Asian and Portfolio Options by Conditioning on the Geometric Mean Price," Management Science, INFORMS, vol. 40(12), pages 1705-1711, December.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Alexander Novikov & Scott Alexander & Nino Kordzakhia & Timothy Ling, 2016. "Pricing of Asian-type and Basket Options via Upper and Lower Bounds," Papers 1612.08767, arXiv.org.

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:arx:papers:1407.7315. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (arXiv administrators). General contact details of provider: http://arxiv.org/ .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.