Information-based Asset Pricing Of Options Using Stochastic Volatility Models
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Date
2021Author
Ikamari, Cynthia A
Type
ThesisLanguage
enMetadata
Show full item recordAbstract
. In asset pricing, explicit models are being constructed for the flow of market information.
Financial markets are making use of such models as a basis for asset pricing. With increased
globalization of financial markets, investors and traders are becoming more interested in
multi-asset products. Options that consist of a portfolio of assets are of interest to investors
because they provide diversification across a number of market segments and assets. They
are also cheaper in comparison to a portfolio that consists of similar single asset options.
With these developments, financial markets are faced with the challenge of determining
suitable prices for these multi-asset options.
This study looks at the valuation of such options incorporating information using a stochastic
volatility model. An approximate price for multi-asset options is derived using the
notion of comonotonicity and Wishart processes under the information-based asset pricing
framework. The results show that the information flow rate parameter plays a significant
role in the prices obtained in the model based on Brody, Hughson and Macrina’s asset
pricing framework. The prices obtained using the model give a relatively close fit to the
prices observed in the market.
Publisher
University of Nairobi
Rights
Attribution-NonCommercial-NoDerivs 3.0 United StatesUsage Rights
http://creativecommons.org/licenses/by-nc-nd/3.0/us/Collections
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