A Comparison between the Pricing of Capped and Power Options on the Basis of Arbitrage Prevention: Evidence from a Stochastic Market with Double Stochastic Volatility, Double Jump, and a Stochastic Intensity Measure

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Dastranj Elham; Sahebi Fard Hosein; ABDOLBAGHI ABDOLMAJID; Latifi Roghaye

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Paper Information

Journal: JOURNAL OF ASSET MANAGEMENT AND FINANCING Year:2020 | Volume:8 | Issue:2 (29) Page(s): 89-103

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Information Journal Paper

Title

A Comparison between the Pricing of Capped and Power Options on the Basis of Arbitrage Prevention: Evidence from a Stochastic Market with Double Stochastic Volatility, Double Jump, and a Stochastic Intensity Measure

Author(s)

Dastranj Elham | Sahebi Fard Hosein | ABDOLBAGHI ABDOLMAJID | Latifi Roghaye | Issue Writer Certificate

Keywords

Power optionQ1

Capped optionQ1

Fast fourier transformQ1

Stochastic volatilityQ1

Stochastic intensityQ1

Abstract

Objective: In this paper, three types of Power options under special stochastic markets have been priced. In the considered market, a risky underlying asset follows a model with two stochastic volatilities, two jumps, and a Stochastic intensity measure. Generally, a Power option is supposed to generate more income and benefit than other options. There exist, nevertheless, some methods thwarting the opportunities and one of these methods is considering a barrier such as a cap for Power option income. The aim of this study is to draw a comparison between the ability of capped and Power options in generating arbitrage opportunities. Method: In this study capped and Power options are compared in order to find probable arbitrage opportunities under the considered market. For this purpose, comparisons are made on the basis of a hypothetical condition, applying the Tehran Stock Exchange index as an underlying asset. Then, the profits of these two options extracted from the data of the Tehran Stock Exchange have been compared. Results: Our findings indicate that between the capped and Power options, the former has a higher ability to handicap the profit of arbitrage opportunities.

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APA: Copy

Dastranj, Elham, Sahebi Fard, Hosein, ABDOLBAGHI, ABDOLMAJID, & Latifi, Roghaye. (2020). A Comparison between the Pricing of Capped and Power Options on the Basis of Arbitrage Prevention: Evidence from a Stochastic Market with Double Stochastic Volatility, Double Jump, and a Stochastic Intensity Measure. JOURNAL OF ASSET MANAGEMENT AND FINANCING, 8(2 (29) ), 89-103. SID. https://sid.ir/paper/403732/en

Vancouver: Copy

Dastranj Elham, Sahebi Fard Hosein, ABDOLBAGHI ABDOLMAJID, Latifi Roghaye. A Comparison between the Pricing of Capped and Power Options on the Basis of Arbitrage Prevention: Evidence from a Stochastic Market with Double Stochastic Volatility, Double Jump, and a Stochastic Intensity Measure. JOURNAL OF ASSET MANAGEMENT AND FINANCING[Internet]. 2020;8(2 (29) ):89-103. Available from: https://sid.ir/paper/403732/en

IEEE: Copy

Elham Dastranj, Hosein Sahebi Fard, ABDOLMAJID ABDOLBAGHI, and Roghaye Latifi, “A Comparison between the Pricing of Capped and Power Options on the Basis of Arbitrage Prevention: Evidence from a Stochastic Market with Double Stochastic Volatility, Double Jump, and a Stochastic Intensity Measure,” JOURNAL OF ASSET MANAGEMENT AND FINANCING, vol. 8, no. 2 (29) , pp. 89–103, 2020, [Online]. Available: https://sid.ir/paper/403732/en

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