Questions about models for the valuation of option contracts.

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4
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1answer
352 views

Risk-neutral pricing in incomplete markets

I know that in order to use the risk-neutral valuation principle, that is, pricing options as their payoff function under a risk neutral measure, one has to have a complete market. But in the ...
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1answer
134 views

Intuitive understanding of Black-Scholes pricing

The Black-Scholes formula entails market completeness, so the price of an option is only the cost associated with dynamically hedging the option. Where does this cost come from? I don't see how ...
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0answers
198 views

The option values are different from two r package - foptions,rquantlib

The results are very different.I know the code from quantlib and the result of quantlib seem right(close to market price). Is there anyone know why the value from fOptions is so large or fOptions used ...
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2answers
347 views

calculate gamma value using finite difference method

I try to use the finite difference method to get the approximately gamma value, but there is an issue I can't solve. First, I set $h$ to 1 basis point of underlying asset value, but the result is not ...
0
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1answer
73 views

Sample size and historical correlation matrices

I was wondering whether any literatures existed on how to properly estimate correlation matrices from historical data. Obviously the entire procedures allows a lot of leeway. The frequency of ...
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0answers
57 views

Is it possible to graph the option price with respect to the greeks

Is it possible to graph a European option's price as a function of say, its delta? I've been wondering this since, for example, for a call, the option price is given by $$Se^{-q*t}\Phi (d_1) - ...
4
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2answers
544 views

Successfull applications of Chaos Theory in Quant Finance

Do successful applications of chaos theory to quant finance exist ? While still in the university I remember some people mentioning how chaos theory and fractals could be applied in a finance ...
1
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3answers
170 views

Is there any other way to measure option pricing model performance than proximity to market prices?

Short version Why do we take market prices as the prices to be estimated and predicted? The common answer is efficient markets hypothesis as in "Market agents do their best effort given their ...