Pricing stock loans with the CGMY model

DOI10.1155/2019/6903019MaRDI QIDQ2296547zbMATH OpenOpenAlexWikidataFDO

Authors Congyin Fan, Chunhao Zhou

Publication date 18 February 2020

Published in Discrete Dynamics in Nature and Society (Search for Journal in Brave)

Copyright license Creative Commons Attribution 4.0 International

Full work available at URL https://doi.org/10.1155/2019/6903019

Mathematics Subject Classification ID

Stability and convergence of numerical methods for initial value and initial-boundary value problems involving PDEs (65M12) Derivative securities (option pricing, hedging, etc.) (91G20) Numerical methods (including Monte Carlo methods) (91G60)

Review text

Summary: The empirical research shows that the log-return of stock price in finance market rejects the normal distribution and admits a subclass of the asymmetric distribution. Hence, the pricing problem of stock loan is investigated under the assumption that the log-return of stock price follows the CGMY process in this work. Under this framework, the pricing model of stock loan can be described by a free boundary condition problem of space-fractional partial differential equation (FPDE). First of all, in order to change the original model defined in a fixed domain, a penalty term is introduced, and then a first order fully implicit difference schemes is developed. Secondly, based on the numerical scheme, we prove the stock loan value generated by our method does not fall below the value obtained when the contract of stock loan is exercised early. Finally, the numerical experiments are implemented and the impacts of key parameters in the CGMY model on the value and optimal redemption price of stock loan are analyzed, and some reasonable explanation should be given.

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Cited in

(5)

• Stock loan valuation based on the finite moment log-stable process
• Mathematical analysis and numerical methods for a PDE model of a stock loan pricing problem
• Pricing stock loans under the Lèvy-\(\alpha\)-stable process with jumps
• American call option pricing under the KoBoL model with Poisson jumps
• Pricing of margin call stock loan based on the FMLS

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