An Option Pricing Model Based on Market Factors

In option pricing theory, the risk-neutral measure is a measure that allows for the valuation of financial instruments such as options. The risk-neutral measure is obtained by assuming that investors are indifferent to the risk and that the expected rate of return on all assets is equal to the risk-free …

Diffusive Volatility and Jump Risks

Implied volatility is an estimation of the future volatility of a security’s price. It is calculated using an option-pricing model, such as the Black-Scholes model, as it takes into account various factors including the current price of the underlying asset and its strike price. Implied volatility helps investors to gauge …

Factor Model for Delta-Hedged Options Returns

Options are contracts that allow traders to buy or sell a security at a predetermined price. Options give the holder the right, but not the obligation, to buy (call option) or sell (put option). They are traded on exchanges like stocks and have their own ticker symbols. Options can be …