Speed and Accuracy Comparison of Noncentral Chi-Square Distribution Methods for...

• Autor(es): Larguinho, M. ; Dias, J.C. ; Braumann, C.A.
• Data: 2011
• Identificador Persistente: http://hdl.handle.net/10174/4635
• Origem: Repositório Científico da Universidade de Évora
• Assunto(s): CEV model; Option pricing; Non-central chi-square distribution
• Tipo de Documento: Artigo
• Idioma: Português

Descrição

Pricing options and evaluating greeks under the constant elasticity of variance (CEV) model require the computation of the noncentral chi-square distribution function. In this article, we compare the performance in terms of accuracy and computational time of alternative methods for computing such probability distributions against an xternally tested benchmark. In addition, we present closed-form solutions for computing greek measures under the CEV option pricing model for both beta < 2 and beta > 2, thus being able to accommodate direct leverage effects as well as inverse leverage effects that are frequently observed in the options markets.