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Title: The Valuation of European Options When Asset Returns Are Autocorrelated
Authors: 廖四郎;陳昭君
Liao, Szu-Lang;Chen, Chao-Chun
Keywords: European Option Pricing;Autocorrelated Returns;Martingale Asset Pricing
Date: 2006-01
Issue Date: 2008-11-14 12:25:29 (UTC+8)
Abstract: This article derives the closed-form formula for a European option on an asset with returns following a continuous-time type of first-order moving average process, which is called an MA(1)-type option. The pricing formula of these options is similar to that of Black and Scholes, except for the total volatility input. Specifically, the total volatility input of MA(1)-type options is the conditional standard deviation of continuous-compounded returns over the option's remaining life, whereas the total volatility input of Black and Scholes is indeed the diffusion coefficient of a geometric Brownian motion times the square root of an option's time to maturity. Based on the result of numerical analyses, the impact of autocorrelation induced by the MA(1)-type process is significant to option values even when the autocorrelation between asset returns is weak.
Relation: Journal of Futures Markets, 26(1), 85-102
Data Type: article
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Appears in Collections:[金融學系] 期刊論文

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