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on Corporate Finance |
| By: | Michael Weber (Haas School of Business, University of California at Berkeley); Marcel Prokopczuk (ICMA Centre, University of Reading) |
| Abstract: | This article analyzes the issue of American option valuation when the underlying exhibits a GARCH-type volatility process. We propose the usage of Rubinstein's Edgeworth binomial tree (EBT) in contrast to simulation-based methods being considered in previous studies. The EBT-based valuation approach makes an implied calibration of the pricing model feasible. By empirically analyzing the pricing performance of American index and equity options, we illustrate the superiority of the proposed approach. |
| Keywords: | American Options, GARCH, Implied Calibration, Edgeworth Binomial Tree |
| JEL: | G13 C22 C51 |
| Date: | 2010–01 |
| URL: | http://d.repec.org/n?u=RePEc:rdg:icmadp:icma-dp2010-02&r=cfn |
| By: | Steffen Mahringer (ICMA Centre, University of Reading); Marcel Prokopczuk (ICMA Centre, University of Reading) |
| Abstract: | In this paper, we investigate the pricing of crack spread options. The special focus is laid on the question, of whether univariate modeling of the crack spread or explicit modeling of the two underlyings is preferable. Therefore, we contrast the bivariate GARCH volatility model for co-integrated underlyings of Duan and Pliska (2004), with the alternative of modeling the crack spread directly. Conducting an extensive empirical analysis of crude oil/heating oil and crude oil/gasoline crack spread options traded on the New York Mercantile Exchange, the more simplistic univariate approach is found to be superior with respect to option pricing performance. |
| Keywords: | Crack Spread Options, Option Valuation, Co-integrated Underlyings |
| JEL: | G13 C50 Q40 |
| Date: | 2010–01 |
| URL: | http://d.repec.org/n?u=RePEc:rdg:icmadp:icma-dp2010-01&r=cfn |
| By: | de Mel, Suresh; McKenzie, David; Woodruff, Christopher |
| Abstract: | Using data from surveys of enterprises in Sri Lanka after the December 2004 tsunami, the authors undertake the first microeconomic study of the recovery of the private firmsin a developing country following a major natural disaster. Disaster recovery in low-income countries is characterized by the prevalence of relief aid rather than of insurance payments; the data show this distinction has important consequences. The data indicate that aid provided directly to households correlates reasonably well with reported losses of household assets, but is uncorrelated with reported losses of business assets. Business recovery is found to be slower than commonly assumed, with disaster-affected enterprises lagging behind unaffected comparable firms more than three years after the disaster. Using data from random cash grants provided by the project, the paper shows that direct aid is more important in the recovery of enterprises operating in the retail sector than for those operating in the manufacturing and service sectors. |
| Keywords: | Microfinance,Debt Markets,Banks&Banking Reform,Natural Disasters,Hazard Risk Management |
| Date: | 2010–04–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:5269&r=cfn |