Efficient Pricing of Large Panels of Options

Speaker: Lars Stentoft, Western University

Date: April 27th

Time: 3 pm

Room: LH3058 (Lazaridis Hall, Room 3058)

Abstract: Assuming only homogeneity of the option price and using initial state dispersion, we show how a single simulation can be used to price samples of panels of options, e.g., through time when state variables are time varying. Compared to pricing options individually, particularly ones with early exercise or exotic features, the cost of pricing additional options is negligible. A major benefit with our approach is that calibrating option pricing models to large panels of, in particular, American options becomes feasible. We showcase this by calibrating models with time varying volatility and asymmetric features to a large panel of S&P 100 Index options

Bio: Lars Stentoft is an Associate Professor at Department of Economics (joint with Department of Statistical and Actuarial Sciences), University of Western Ontario, Canada. His main field of research is concerned with financial econometrics, where he specializes on developing flexible models for financial asset returns and their use for option pricing, and on computational finance, where he works on simulation based methods for pricing derivatives.