Original title: On the pricing of illiquid options with Black-Scholes formula
Authors: Tichý, Tomáš ; Kopa, Miloš ; Vitali, S.
Document type: Papers
Conference/Event: Řízení a modelování finančních rizik, Ostrava (CZ), 2014-09-08 / 2014-09-09
Year: 2014
Language: eng
Abstract: Detecting the fair, ie. no-arbitrage, price of an option is a very interesting and challenging task of quantitative finance. It results mostly from the fact that the option payoff is nonlinear and the price can be very sensitive to the changes of underlying factors (especially ATM options). From the other point of view, ATM vanilla options are often traded and liquid, while deep ITM and OTM options are mostly illiquid and it is difficult to estimate the model parameters. Another issue is how to obtain the market assumptions about riskless rate relevant for the option maturity and the future expected dividends. In this paper we focus on a particular problem of extracting parameters to value options on dividend paying stocks via BS model using real data from German option market.
Keywords: BS formula; German option market; illiquid option; implied parameters option valuation
Project no.: GA13-25911S (CEP)
Funding provider: GA ČR
Host item entry: Proceedings of Managing and Modelling of Financial Risks, ISBN 978-80-248-3631-7

Institution: Institute of Information Theory and Automation AS ČR (web)
Document availability information: Fulltext is available at external website.
External URL: http://library.utia.cas.cz/separaty/2014/E/kopa-0437675.pdf
Original record: http://hdl.handle.net/11104/0241899

Permalink: http://www.nusl.cz/ntk/nusl-180443


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