Agent-Based Modeling in Option Pricing under Unknown Volatility and Liquidity risk
نویسنده
چکیده
In this paper, we modeled an artificial European option market under unknown volatility with liquidity costs using an agent-based modeling and simulation approach. The option price in the presence of liquidity costs is given by solving a partial differential equation. We proved that both unknown volatility and the unknown drift have significant effects in the pricing bias. Moreover, pricing bias tends to decrease as the drift increasing in the case of low volatility. Our approach may serve as a first step towards the goal of option pricing in disequilibrium with unknown volatility. ___________________________________________________________________________
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