Real-world pricing for a modified constant elasticity of variance model

Miller, S; Platen, E

Real-world pricing for a modified constant elasticity of variance model

Miller, S Platen, E

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Publisher:: Routledge
Publication Type:: Journal Article
Citation:: Applied Mathematical Finance, 2010, 1466-4313 pp. 1 - 29
Issue Date:: 2010-01

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Field	Value	Language
dc.contributor.author	Miller, S	en_US
dc.contributor.author	Platen, E https://orcid.org/0000-0003-4595-3123	en_US
dc.date.issued	2010-01	en_US
dc.identifier.citation	Applied Mathematical Finance, 2010, 1466-4313 pp. 1 - 29	en_US
dc.identifier.issn	1350-486X	en_US
dc.identifier.uri	http://hdl.handle.net/10453/8249
dc.description.abstract	This paper considers a modified constant elasticity of variance (MCEV) model. This model uses the familiar constant elasticity of variance form for the volatility of the growth optimal portfolio (GOP) in a continuous market. It leads to a GOP that follows the power of a time-transformed squared Bessel process. This paper derives analytic real-world prices for zero-coupon bonds, instantaneous forward rates and options on the GOP that are both theoretically revealing and computationally efficient. In addition, the paper examines options on exchange prices and options on zero-coupon bonds under the MCEV model. The semi-analytic prices derived for options on zero-coupon bonds can subsequently be used to price interest rate caps and floors.	en_US
dc.publisher	Routledge	en_US
dc.relation.ispartof	Applied Mathematical Finance	en_US
dc.relation.isbasedon	10.1080/13504860903155035	en_US
dc.rights	This is an Author's Accepted Manuscript of an article published in Applied Mathematical Finance, 2010, 1466-4313 pp. 1 - 29. Copyright Routledge, available online at: https://dx.doi.org/10.1080/13504860903155035.	en_US
dc.subject.classification	Finance	en_US
dc.title	Real-world pricing for a modified constant elasticity of variance model	en_US
dc.type	Journal Article
utslib.citation.volume	1466-4313	en_US
utslib.for	1502 Banking, Finance and Investment	en_US
utslib.for	0102 Applied Mathematics	en_US
utslib.for	0103 Numerical and Computational Mathematics	en_US
pubs.embargo.period	Not known	en_US
pubs.organisational-group	/University of Technology Sydney
pubs.organisational-group	/University of Technology Sydney/Faculty of Business
pubs.organisational-group	/University of Technology Sydney/Faculty of Science
pubs.organisational-group	/University of Technology Sydney/Faculty of Science/School of Mathematical and Physical Sciences
pubs.organisational-group	/University of Technology Sydney/Strength - QFRC - Quantitative Finance Research Centre
utslib.copyright.status	open_access
pubs.consider-herdc	true	en_US
pubs.volume	1466-4313	en_US

Abstract:

This paper considers a modified constant elasticity of variance (MCEV) model. This model uses the familiar constant elasticity of variance form for the volatility of the growth optimal portfolio (GOP) in a continuous market. It leads to a GOP that follows the power of a time-transformed squared Bessel process. This paper derives analytic real-world prices for zero-coupon bonds, instantaneous forward rates and options on the GOP that are both theoretically revealing and computationally efficient. In addition, the paper examines options on exchange prices and options on zero-coupon bonds under the MCEV model. The semi-analytic prices derived for options on zero-coupon bonds can subsequently be used to price interest rate caps and floors.

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http://hdl.handle.net/10453/8249