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Option Pricing under Unknown Volatility: An Agent-Based Modeling and Simulation Approach
We modeled an artificial European option market with unknown volatility using an agent-based modeling and simulation approach. Contrary to the standard Black and Scholes model with "known" volatility, there is significant pricing bias (market price/theoretical price) in the presence of unk...
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| creator | Shu Lin Zhang De Yu Feng Shu Ping Wang |
| description | We modeled an artificial European option market with unknown volatility using an agent-based modeling and simulation approach. Contrary to the standard Black and Scholes model with "known" volatility, there is significant pricing bias (market price/theoretical price) in the presence of unknown volatility. Moreover, the unknown drift has a significant nonlinear effect in the pricing bias. Finally, 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. |
| doi_str_mv | 10.1109/ICIFE.2009.25 |
| format | conference_proceeding |
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Contrary to the standard Black and Scholes model with "known" volatility, there is significant pricing bias (market price/theoretical price) in the presence of unknown volatility. Moreover, the unknown drift has a significant nonlinear effect in the pricing bias. Finally, 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.</description><identifier>ISBN: 9780769536064</identifier><identifier>ISBN: 0769536069</identifier><identifier>DOI: 10.1109/ICIFE.2009.25</identifier><identifier>LCCN: 2009900359</identifier><language>eng</language><publisher>IEEE</publisher><subject>agent-based simulation ; Bayesian methods ; Context modeling ; disequilibrium model ; Educational institutions ; Equations ; Instruments ; Measurement uncertainty ; Mechanical factors ; option pricing ; Parameter estimation ; Pricing ; Security ; unknown volatility</subject><ispartof>2009 International Conference on Information and Financial Engineering, 2009, p.130-134</ispartof><woscitedreferencessubscribed>false</woscitedreferencessubscribed></display><links><openurl>$$Topenurl_article</openurl><openurlfulltext>$$Topenurlfull_article</openurlfulltext><thumbnail>$$Tsyndetics_thumb_exl</thumbnail><linktohtml>$$Uhttps://ieeexplore.ieee.org/document/5189983$$EHTML$$P50$$Gieee$$H</linktohtml><link.rule.ids>309,310,776,780,785,786,2052,27902,54895</link.rule.ids><linktorsrc>$$Uhttps://ieeexplore.ieee.org/document/5189983$$EView_record_in_IEEE$$FView_record_in_$$GIEEE</linktorsrc></links><search><creatorcontrib>Shu Lin Zhang</creatorcontrib><creatorcontrib>De Yu Feng</creatorcontrib><creatorcontrib>Shu Ping Wang</creatorcontrib><title>Option Pricing under Unknown Volatility: An Agent-Based Modeling and Simulation Approach</title><title>2009 International Conference on Information and Financial Engineering</title><addtitle>ICIFE</addtitle><description>We modeled an artificial European option market with unknown volatility using an agent-based modeling and simulation approach. Contrary to the standard Black and Scholes model with "known" volatility, there is significant pricing bias (market price/theoretical price) in the presence of unknown volatility. Moreover, the unknown drift has a significant nonlinear effect in the pricing bias. Finally, 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.</description><subject>agent-based simulation</subject><subject>Bayesian methods</subject><subject>Context modeling</subject><subject>disequilibrium model</subject><subject>Educational institutions</subject><subject>Equations</subject><subject>Instruments</subject><subject>Measurement uncertainty</subject><subject>Mechanical factors</subject><subject>option pricing</subject><subject>Parameter estimation</subject><subject>Pricing</subject><subject>Security</subject><subject>unknown volatility</subject><isbn>9780769536064</isbn><isbn>0769536069</isbn><fulltext>true</fulltext><rsrctype>conference_proceeding</rsrctype><creationdate>2009</creationdate><recordtype>conference_proceeding</recordtype><sourceid>6IE</sourceid><recordid>eNotjE1PwkAURScxJCp26crN_IHim85Xn7tKAJtgMFGMOzLDTHG0TJu2xPDvhejd3MU99xByy2DCGOB9OS3ns0kGgJNMXpAEdQ5aoeQKlBiR6_OCAFziJUn6_gtO4SiZgCvysWqH0ET60oVtiDt6iM53dB2_Y_MT6XtTmyHUYTg-0CLSYufjkD6a3jv63Dhfnx8mOvoa9oczeRIVbds1Zvt5Q0aVqXuf_PeYrOezt-lTulwtymmxTAPTckgxy4RwmFmjchTaM2TaeYsVRy2UVaYyVuXKIjCnmbDWba3QnAHkorJg-Jjc_XmD937TdmFvuuNGshwx5_wXDc5R0Q</recordid><startdate>200904</startdate><enddate>200904</enddate><creator>Shu Lin Zhang</creator><creator>De Yu Feng</creator><creator>Shu Ping Wang</creator><general>IEEE</general><scope>6IE</scope><scope>6IL</scope><scope>CBEJK</scope><scope>RIE</scope><scope>RIL</scope></search><sort><creationdate>200904</creationdate><title>Option Pricing under Unknown Volatility: An Agent-Based Modeling and Simulation Approach</title><author>Shu Lin Zhang ; De Yu Feng ; Shu Ping Wang</author></sort><facets><frbrtype>5</frbrtype><frbrgroupid>cdi_FETCH-LOGICAL-i175t-92244d92ba68947e1917deb9f39746b6afab686b901d714bbdcb47310084fb0a3</frbrgroupid><rsrctype>conference_proceedings</rsrctype><prefilter>conference_proceedings</prefilter><language>eng</language><creationdate>2009</creationdate><topic>agent-based simulation</topic><topic>Bayesian methods</topic><topic>Context modeling</topic><topic>disequilibrium model</topic><topic>Educational institutions</topic><topic>Equations</topic><topic>Instruments</topic><topic>Measurement uncertainty</topic><topic>Mechanical factors</topic><topic>option pricing</topic><topic>Parameter estimation</topic><topic>Pricing</topic><topic>Security</topic><topic>unknown volatility</topic><toplevel>online_resources</toplevel><creatorcontrib>Shu Lin Zhang</creatorcontrib><creatorcontrib>De Yu Feng</creatorcontrib><creatorcontrib>Shu Ping Wang</creatorcontrib><collection>IEEE Electronic Library (IEL) Conference Proceedings</collection><collection>IEEE Proceedings Order Plan All Online (POP All Online) 1998-present by volume</collection><collection>IEEE Xplore All Conference Proceedings</collection><collection>IEEE Electronic Library (IEL)</collection><collection>IEEE Proceedings Order Plans (POP All) 1998-Present</collection></facets><delivery><delcategory>Remote Search Resource</delcategory><fulltext>fulltext_linktorsrc</fulltext></delivery><addata><au>Shu Lin Zhang</au><au>De Yu Feng</au><au>Shu Ping Wang</au><format>book</format><genre>proceeding</genre><ristype>CONF</ristype><atitle>Option Pricing under Unknown Volatility: An Agent-Based Modeling and Simulation Approach</atitle><btitle>2009 International Conference on Information and Financial Engineering</btitle><stitle>ICIFE</stitle><date>2009-04</date><risdate>2009</risdate><spage>130</spage><epage>134</epage><pages>130-134</pages><isbn>9780769536064</isbn><isbn>0769536069</isbn><abstract>We modeled an artificial European option market with unknown volatility using an agent-based modeling and simulation approach. Contrary to the standard Black and Scholes model with "known" volatility, there is significant pricing bias (market price/theoretical price) in the presence of unknown volatility. Moreover, the unknown drift has a significant nonlinear effect in the pricing bias. Finally, 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.</abstract><pub>IEEE</pub><doi>10.1109/ICIFE.2009.25</doi><tpages>5</tpages></addata></record> |
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| ispartof | 2009 International Conference on Information and Financial Engineering, 2009, p.130-134 |
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| language | eng |
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| source | IEEE Electronic Library (IEL) Conference Proceedings |
| subjects | agent-based simulation Bayesian methods Context modeling disequilibrium model Educational institutions Equations Instruments Measurement uncertainty Mechanical factors option pricing Parameter estimation Pricing Security unknown volatility |
| title | Option Pricing under Unknown Volatility: An Agent-Based Modeling and Simulation Approach |
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