European Option Based on Least-Squares Method under Non-Extensive Statistical Mechanics

This paper is devoted to the study of the pricing of European options under a non-Gaussian model. This model follows a non-extensive statistical mechanics which can better describe the fractal characteristics of price movement in the financial market. Moreover, we present a simple but precise least-...

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Veröffentlicht in:Entropy (Basel, Switzerland) Switzerland), 2019-10, Vol.21 (10), p.933
Hauptverfasser: Liu, Limin, Cui, Yingying
Format: Artikel
Sprache:eng
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Zusammenfassung:This paper is devoted to the study of the pricing of European options under a non-Gaussian model. This model follows a non-extensive statistical mechanics which can better describe the fractal characteristics of price movement in the financial market. Moreover, we present a simple but precise least-square method for approximation and obtain a closed-form solution of the price of European options. The advantages of this technique are illustrated by numerical simulation, which shows that the least-squares method is better compared with Borland’s two methods in 2002 and 2004.
ISSN:1099-4300
1099-4300
DOI:10.3390/e21100933