Online Program

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Friday, October 19
Fri, Oct 19, 5:15 PM - 6:30 PM
Hall of Mirrors
Celebrating Women in Statistics and Data Science Reception and Speed Poster 3, Sponsored by Google and 84.51°

Testing an Option Pricing Model with Memory Against Large Market Data (304977)

*Flavia Cabral Sancier-Barbosa, Colorado College 

Keywords: option pricing, stock market data, Black-Scholes, models with memory

In this talk, we discuss the testing of a continuous option pricing model that has stochastic volatility with hereditary structure. The stock dynamics follows a generalized geometric Brownian Motion described by a nonlinear stochastic functional differential equation. The option pricing formula is the result of an equivalent (local) martingale measure and therefore are written as a conditional expectation that can be simulated via Monte Carlo methods. We assess the model's performance using large USA market data from 2008 to 2010. This time interval allows us to test the model during a period of financial crisis.