We summarize an experimental study on the viability of several call option trading strategies that rely on our earlier work with machine-learning-based detection and prediction of heightened volatility periods. The proposed trading strategies makes use of the connection between call options prices and volatility in the underlying.1,2 As part of these strategies, the trader would purchase call o...

Due to the mispricing of options, no-arbitrage condition put-call parity (PCP) violations lead to inefficiency in the currency options market. Through transaction costs, the effects of these violations are reduced to negligible levels, indicating that PCP is not a sufficient condition for an options market efficiency test. Thus, this study developed a transaction cost-adjusted put-call parity (...

In this paper, we derive an equilibrium in which some investors buy call/put options on the market portfolio while others sell them. Since investors are assumed to have similar risk-averse preferences, the demand for these contracts is not explained by di erences in the shape of utility functions. Rather, it is the degree to which agents face other, non-hedgeable, background risks that determin...

* We are grateful for helpful comments from Salih Neftci. The comments of an anonymous referee were enormously beneficial. We are grateful for support from the Schweger Fund. Remaining errors are our own.

A previous paper (West 2005) tackled the issue of calculating accurate uni-, biand trivariate normal probabilities. This has important applications in the pricing of multi-asset options, e.g. rainbow options. In this paper, we derive the Black–Scholes prices of several styles of (multi-asset) rainbow options using change-of-numeraire machinery. Hedging issues and deviations from the Black-Schol...

In a competitive electricity market traditional demand side management options offering customers curtailable service at reduced rates are replaced by voluntary customer responses to electricity spot prices. In this new environment, customers wishing to ensure a fixed electricity price while taking advantage of their flexibility to curtail loads can do so by purchasing a forward electricity con...

The purpose of this paper is to examine whether equity options traded on individual firms are sensitive to the firm’s leverage, and to see if adding leverage to the option model improves its pricing accuracy. In a hitherto unexamined economic approach to option valuation, we use reported leverage from financial statements, and a compound option (CO) model, for valuing stock options on individua...

G. Linde, M. Åberg. 2004: Pricing European Call Options Using a Pseudospectral Method. Written in English. Uppsala, Sweden. The aim of the project is to price European call options with a pseudospectral method (PS). An option is a financial asset that can be resembled to a lottery coupon. In a predefined time in the future the option is either worthless or worth more than it was bought for. Bla...