Empirical Comparison of performance of alternative Option Pricing Models in Economic Crises Situaion

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Ezabadi, Mohammad Ghane | 2012

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Type of Document: M.Sc. Thesis
Language: Farsi
Document No: 42923 (01)
University: Sharif University of Technology
Department: Industrial Engineering
Advisor(s): Modarres Yazdi, Mohammad
Abstract:
In this thesis, three popular option pricing models, Black and Scholes Model, Heston Model and Bates Model are compared to each other in economic crises situation. We carry out a comparison between different option pricing models based on S&P500 Index options during 2008. First these data are classified regarding to moneyness and maturity time in nine categories and then the performance of the models, exerting two indexes, In Sample performance and Out Of Sample performance are compared in every category. To reach the prices via In Sample performance index, structural parameters of each model are estimated with the data of each day. Then, daily prices are computed by models and compared with market prices. For Out Of Sample performance assessment, estimated parameters of last day are used to assessing the option prices. Then in order to reach the prices, structural parameters estimated in last week will be used. Regarding to both of indexes, Bates Option Pricing Model has a better performance in comparison to other two models. Moreover, Heston Model performs better than black and Scholes Model.
Keywords:
Pricing ; Options ; Stochastic Volatility Model ; Jump ; Economic Crises

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