Izvorni znanstveni članak

https://doi.org/10.17559/TV-20220609025146

An Optimization Approach for pricing of Discrete European Call options Based on the Preference of Investors

Weiwei Wang ; School of Applied Technology, Nanjing University of Information Science and Technology, Nanjing 210044, PR China
Guoqing Gu ; Finance Office, Jiangsu Open University, Nanjing 210036, PR China
Fameng Sun ; Sinopec Chemical Sales Co., Ltd. Jiangsu Branch, Nanjing 210002PR China
Xiaoping Hu ; School of Economics and Management, Southeast University, Nanjing 210096PR China

Sažetak

Firstly, a method for measuring the risk aversion of investors was proposed based on the prospect theory. Secondly, under a sole hypothetical condition in which the risk aversion degree for different assets is the same in a market, the pricing of discrete European options was given based on the objective probability. Thirdly, it was proven that the European option price obtained was a non-arbitrate price. And then, both for the binomial tree, which is a complete market, and for the trinomial tree, which is an incomplete market, pricing European options were discussed by implementing the method provided in this paper. Lastly, an illustration is used to demonstrate how to estimate preference parameters from market data and how to calculate options prices. The result states that the method in this paper is the same as the traditional risk-neutral methods in a complete market, but it is different from the traditional risk-neutral methods in an incomplete market, and more, the price obtained in this paper is affected by the objective probability and also contains the risk attitude of the investors.

Ključne riječi

discrete European option; pricing; risk aversion; objective probability

Hrčak ID:

300683

URI

https://hrcak.srce.hr/300683

Datum izdavanja:

23.4.2023.

Posjeta: 774 *