Posted by
Rama Cont on
Oct 17, 2002; 4:08pm
URL: http://quantlib.414.s1.nabble.com/Comparison-of-models-tp2252p2255.html
Of course the model makes a difference in the price.
However the comparison does not make sense for a single option since you
can always choose model parameters in different models to get the same
price for a single option.
However if you use many options, say all vanilla options traded on
a given underlying, you need a model with time-dependence/ price dependent
features to fit the cross section of option prices.
Typical examples are: local volatility models, stochastic volatility
models, jump-diffusion models and combinations of these.
There is a large literature in quantitative finance journals comparing
various models.
--------------------------------------------
Rama CONT
Centre de Mathematiques Appliquees
CNRS - Ecole Polytechnique
F-91128 Palaiseau, France.
WWW:
http://www.cmap.polytechnique.fr/~rama/--------------------------------------------
On Thu, 17 Oct 2002, Ravani, Michele wrote:
> does anybody know where I can find a comparison of models?
> For instance, if I price an American option on a stock with different models keeping all the parameters constant, what is the difference in the theoretical price of the option?
> I know that I could do that easily with QL (and I will do it) but I don't have the time right now and I am really curious.
> So I am hoping that somebody has already done it :o)
> My basic question essentially is: if we take simple vanilla derivatives, does it pay to invest in models which are more advanced that BS or Binomial?
>
> Thanks
>
> Michele
>
> "MMS <csfb.com>" made the following
> annotations on 10/17/02 18:45:16
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