ScholarBank@NUShttps://scholarbank.nus.edu.sgThe DSpace digital repository system captures, stores, indexes, preserves, and distributes digital research material.Tue, 27 Sep 2022 17:58:25 GMT2022-09-27T17:58:25Z5021Information-time option pricing: Theory and empirical evidencehttps://scholarbank.nus.edu.sg/handle/10635/45233Title: Information-time option pricing: Theory and empirical evidence
Authors: Chang, C.W.; Chang, J.S.K.; Lim, K.-G.
Abstract: With a stochastic time change from calendar-time to information-time, we derive a parsimonious option pricing formula with stochastic volatility as a risk-neutral Poisson sum of Merton's (1973) prices over the option's information-time maturity domain. The formula contains two unobservable parameters, information arrival intensity and information-time asset volatility, with stochastic volatility induced by random information arrival. When the information arrival rate intensifies, the option price increases and vice-versa. We test the formula in pricing, hedging, and excess profits capture empirically using currency and the S&P 500 futures options transaction data.
Thu, 01 Jan 1998 00:00:00 GMThttps://scholarbank.nus.edu.sg/handle/10635/452331998-01-01T00:00:00ZPricing Catastrophe Insurance Futures Call Spreads: A Randomized Operational Time Approachhttps://scholarbank.nus.edu.sg/handle/10635/45246Title: Pricing Catastrophe Insurance Futures Call Spreads: A Randomized Operational Time Approach
Authors: Chang, C.W.; Chang, J.S.K.; Yu, M.-T.
Abstract: Actuaries value insurance claim accumulations using a compound Poisson process to capture the random, discrete, and clustered nature of claim arrival, but the standard Black (1976) formula for pricing futures options assumes that the underlying futures price follows a pure diffusion. Extant jump-diffusion option valuation models either assume diversifiable jump risk or resort to equilibrium arguments to account for jump risk premiums. We propose a novel randomized operational time approach to price options in information-time. The time change transforms a compound Poisson process to a more trackable pure diffusion and leads to a parsimonious option pricing formula as a risk-neutral Poisson sum of Black's prices in information-time with only two unobservable variables - the information arrival intensity and the information-time futures volatility.
Mon, 01 Jan 1996 00:00:00 GMThttps://scholarbank.nus.edu.sg/handle/10635/452461996-01-01T00:00:00Z