Empirical Performance of Models for Barrier Option Valuation

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Empirical Performance of Models for Barrier Option Valuation

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dc.contributor.author Jessen, Cathrine
dc.contributor.author Poulsen, Rolf
dc.date.accessioned 2015-09-09T10:16:22Z
dc.date.available 2015-09-09T10:16:22Z
dc.date.issued 2015-09-09
dc.identifier.uri http://hdl.handle.net/10398/9179
dc.description.abstract In this paper the empirical performance of ve di erent models for barrier op- tion valuation is investigated: the Black-Scholes model, the constant elasticity of variance model, the Heston stochastic volatility model, the Merton jump-di usion model, and the in nite activity Variance Gamma model. We use time-series data from the USD/EUR exchange rate market: standard put and call (plain vanilla) option prices and a unique set of observed market values of barrier options. The models are calibrated to plain vanilla option prices, and prediction errors at dif- ferent horizons for plain vanilla and barrier option values are investigated. For plain vanilla options, the Heston and Merton models have similar and superior performance for prediction horizons up to one week. For barrier options, the continuous-path models (Black-Scholes, constant elasticity of variance, and Hes- ton) do almost equally well, while both models with jumps (Merton and Variance Gamma) perform markedly worse. en_US
dc.format.extent 23 en_US
dc.language eng en_US
dc.subject.other Barrier option valuation en_US
dc.subject.other Empirical performance en_US
dc.title Empirical Performance of Models for Barrier Option Valuation en_US
dc.type art en_US
dc.rights.holder
dc.contributor.corporation Copenhagen Business School. CBS en_US
dc.contributor.department Institut for Finansiering en_US
dc.contributor.departmentshort FI en_US
dc.contributor.departmentuk Department of Finance en_US
dc.contributor.departmentukshort FI en_US
dc.description.notes This is an Accepted Manuscript of an article published by Taylor & Francis in Quantitative Finance on 14 Dec 2012, available online: http://www.tandfonline.com/10.1080/14697688.2012.723820 en_US
dc.publisher.year 2012 en_US


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