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

Author

Listed:
  • 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.

Suggested Citation

  • Rafal Weron, 2002. "Pricing European options on instruments with a constant dividend yield: The randomized discrete-time approach," HSC Research Reports HSC/02/04, Hugo Steinhaus Center, Wroclaw University of Technology.
  • Handle: RePEc:wuu:wpaper:hsc0204
    as

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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

    References listed on IDEAS

    as
    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, June.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Option pricing; Dividends; Randomization; Alternative models;

    JEL classification:

    • C16 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Econometric and Statistical Methods; Specific Distributions
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing

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