TY - JOUR
T1 - Barrier option pricing with heavy tailed distribution
AU - Huh, Jeonggyu
AU - Kim, Geonwoo
N1 - Publisher Copyright:
© 2019, Bucharest University of Economic Studies. All rights reserved.
PY - 2019
Y1 - 2019
N2 - Under the Generalized Extreme Value (GEV) model, Markose and Alerton (2011) derived the analytic form solutions for vanilla options, and also removed the distortion of the market only with an additional parameter. In this paper, we use the technique in Rubinstein and Reiner (1991) to get the analytic form solutions for barrier options by introducing the Corrected BS (CBS) model – the BS model close to the GEV model. By introducing CBS volatility we show that barrier option prices are continuous with respect to barriers under the GEV model. In addition, we present that the proposed model outdoes the BS model.
AB - Under the Generalized Extreme Value (GEV) model, Markose and Alerton (2011) derived the analytic form solutions for vanilla options, and also removed the distortion of the market only with an additional parameter. In this paper, we use the technique in Rubinstein and Reiner (1991) to get the analytic form solutions for barrier options by introducing the Corrected BS (CBS) model – the BS model close to the GEV model. By introducing CBS volatility we show that barrier option prices are continuous with respect to barriers under the GEV model. In addition, we present that the proposed model outdoes the BS model.
KW - Barrier option pricing
KW - Generalized extreme value (GEV) distribution
KW - Global credit crisis
KW - Heavy tailed distribution
UR - http://www.scopus.com/inward/record.url?scp=85076886113&partnerID=8YFLogxK
U2 - 10.24818/18423264/53.4.19.03
DO - 10.24818/18423264/53.4.19.03
M3 - Article
AN - SCOPUS:85076886113
SN - 0424-267X
VL - 53
SP - 41
EP - 58
JO - Economic Computation and Economic Cybernetics Studies and Research
JF - Economic Computation and Economic Cybernetics Studies and Research
IS - 4
ER -