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Pricing of European Options with Subjective Probability: Ambiguity aversion in the options market during the European sovereign debt crisis
Umeå University, Faculty of Social Sciences, Umeå School of Business and Economics (USBE), Economics.
2016 (English)Independent thesis Advanced level (degree of Master (Two Years)), 20 credits / 30 HE creditsStudent thesis
Abstract [en]

This essay develops an option pricing formula where the market participantsare assumed to not follow a uniform approach with respect to uncertainty thatarises under extreme market events. By using a continuous Choquet randomwalk for modeling asset dynamics, as well as including marginal utility, an optionprice kernel is obtained- this is opposed to the unique price that arises inthe standard MMBS framework. By numerically backsolving for the ambiguityparameter, the impact of investor ambiguity aversion can be estimated fromobserved market option prices. This method is applied on European call optionswhere the underlying assets are various European bank equities observedduring the European sovereign debt crisis from late 2009 through early 2011.

Abstract [sv]

Denna uppsats utvecklar en optionprissättningsformel som tar hänsyn till såväl varierande marginalnyttor hos marknadsaktörerena för att inkorporera osäkerhetsaversioni prissättning av optioner, som användandet av en kontinuerligChoquet random walk för att modellera processen av de underliggande tillgångarna.Detta ger upphov till en stokastisk diskonteringsfaktor istället för ettentydigt bestämt optionspris som erhålls med standard MMBS. Vi använderdenna formel och löser den numeriskt för att estimera osäkerhetsaversion hosinvesterare. Denna metod appliceras sedan på Europeiska call optioner meddiverese bankaktier som underliggande tillgång under skuldkrisen i eurozonenfrån slutet av 2009 till början av 2011.

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URN: urn:nbn:se:umu:diva-126776OAI: diva2:1037083
Available from: 2016-10-13 Created: 2016-10-13

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