Building a Consistent Pricing Model from Observed Option Prices via Linear Programming

• Main Authors: Liu, Kuei-fang, 劉桂芳
• Other Authors: Liu, Ming-long
• Format: Others
• Language: zh-TW
• Published: 2005
• Online Access: http://ndltd.ncl.edu.tw/handle/02827708783167579966

碩士 === 國立政治大學 === 應用數學研究所 === 93 === This thesis investigates how to recover the risk-neutral probability (equivalent martingale measure) from observed market prices of options. It starts with building an arbitrage model of options portfolio in which the options are assumed to be in one-period time, finite discrete-states, and corresponding to the same underlying asset with different strike prices. If there is no arbitrage opportunity in the market, we can use Lagrangian multiplier method to obtain a Lagrangian multiplier feasibility problem from the arbitrage model. We employ the feasibility problem as the constraints to construct a linear programming model to recover the risk-neutral probability, and utilize this risk-neutral probability to evaluate the fair price of options. Finally, we take TXO as an example to verify the pricing ability of this model.