Comparative Study of Methods for Derivative Pricing

Comparative Study of Methods for Derivative Pricing

    Presenter(s)

    Joel King

    Comments

    Presentation: 2:40 p.m.-3:00 p.m., Kennedy Union 207

    Description

    Stock Options are financial instruments whose values depend upon future price movements of the underlying stock. Since such movements are unknown, the price of the underlying stock is modeled as a random process. This presentation will be focused on the pricing of important options including European, American, and some other exotic options. The importance of the no-arbitrage principle will be emphasized as a necessary requirement to derive meaningful prices of stock options. Additionally, we’ll review the derivation of the classic Black-Scholes model as a limit of a binomial tree. Under the assumptions of the Black-Scholes model, determining or approximating a fair price for options is possible with a variety of methods. We’ll cover three major techniques: binomial trees, Monte Carlo simulations, and methods for solving the Black-Scholes partial differential equation. The results from each method will be compared and we’ll note the limitations of each approach.

    Publication Date

    4-20-2022

    Project Designation

    Capstone Project

    Primary Advisor

    Ruihua Liu

    Primary Advisor's Department

    Mathematics

    Keywords

    Stander Symposium project, College of Arts and Sciences

    Comparative Study of Methods for Derivative Pricing

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