IDEAS home Printed from https://ideas.repec.org/p/hal/wpaper/hal-04719595.html
   My bibliography  Save this paper

Robust European Call Option Pricing via Linear Regression

Author

Listed:
  • Ahmad W. Bitar

    (LIST3N - Laboratoire Informatique et Société Numérique - UTT - Université de Technologie de Troyes)

Abstract

The one-period trinomial option pricing model is well-known in the literature as it considers three possible movement directions of the asset price. However, by equating the price of the option to the self-financing hedging portfolio at maturity, this yields a linear system of three equations with two unknowns that correspond to the coefficients for the delta-hedging portfolio. Hence, the trinomial model is said to be incomplete, that is, there exists an infinite number of equivalent martingale measures. To deal with this incompleteness, this paper aims to price options via some robust linear regression techniques in order to mainly handle the problem of outliers that the least squares fails to consider. The proposed robust techniques are evaluated on numerical data, and the results of which demonstrate their effectiveness for European call option pricing.

Suggested Citation

  • Ahmad W. Bitar, 2024. "Robust European Call Option Pricing via Linear Regression," Working Papers hal-04719595, HAL.
    • Handle: RePEc:hal:wpaper:hal-04719595
    as

    Download full text from publisher

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a search for a similarly titled item that would be available.

    More about this item

    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:hal:wpaper:hal-04719595. See general information about how to correct material in RePEc.

    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.

    We have no bibliographic references for this item. You can help adding them by using 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.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: CCSD (email available below). General contact details of provider: https://hal.archives-ouvertes.fr/ .

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

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.