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Consistent Pricing in Derivatives by pedroperez is a document available to read on EtoBox.
What is Consistent Pricing in Derivatives about?
This document discusses the need for a consistent pricing model for equity and volatility derivatives. It presents a typical "spot" model used to price these derivatives that models the dynamics of the stock price S and volatility V as correlated diffusions. However, this model is inconsistent in how it prices volatility level contracts without considering implications for stock prices. The document argues for a consistent volatility model and provides an example using S&P 500, SPX options, variance swaps,
- Author
- pedroperez
- Language
- EN