Effective and simple VWAP options pricing model

DOI10.1142/S0219024914500368MaRDI QIDQ2929372zbMATH OpenOpenAlexFDO

Authors Alexander Buryak, Ivan Guo

Publication date 12 November 2014

Published in International Journal of Theoretical and Applied Finance (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/1407.7315

zbMATH Keywords

volume weightingequity optionanalytic pricing

Mathematics Subject Classification ID

Derivative securities (option pricing, hedging, etc.) (91G20) Applications of statistics to actuarial sciences and financial mathematics (62P05) Statistical methods; risk measures (91G70)

Abstract: Volume weighted average price (VWAP) options are a popular security type in many countries, but despite their popularity very few pricing models have been developed so far for VWAP options. This can be explained by the fact that the VWAP pricing problem is set in an incomplete market since there is no underlying with which to hedge the volume risk, and hence there is no uniquely defined price. Any price, which is obtained will include a market price of volume risk which must be determined from the corresponding volume statistics. Our analysis strongly supports the hypothesis that the empirical volume statistics of ASX equities can be described reasonably well by fitted gamma distributions. Based on this observation we suggest a simple gamma process-based model that allows for the exact analytic pricing of VWAP options in a rather straightforward way.

Recommendations

• An analytical approximation for pricing VWAP options
• OPTION PRICING WITH VG–LIKE MODELS
• Option pricing: a yet simpler approach
• Pricing VIX options in a stochastic vol-of-vol model
• A SIMPLE OPTION PRICING MODEL WITH MARKOVIAN VOLATILITIES
• Option pricing: A simplified approach
• scientific article; zbMATH DE number 796442
• Pricing VIX options in a 3/2 plus jumps model

Cites work

• scientific article; zbMATH DE number 3436435 (Why is no real title available?)
• scientific article; zbMATH DE number 1869203 (Why is no real title available?)
• A MOMENT MATCHING APPROACH TO THE VALUATION OF A VOLUME WEIGHTED AVERAGE PRICE OPTION
• Numerical recipes. The art of scientific computing.
• On-line VWAP Trading Strategies
• The value of an Asian option
• Valuing Asian and Portfolio Options by Conditioning on the Geometric Mean Price

Cited in

(4)

• Pricing of Asian-type and basket options via bounds
• Pricing of volume-weighted average options: analytical approximations and numerical results
• A MOMENT MATCHING APPROACH TO THE VALUATION OF A VOLUME WEIGHTED AVERAGE PRICE OPTION
• An analytical approximation for pricing VWAP options

This page was built for publication: Effective and simple VWAP options pricing model

Report a bug (only for logged in users!)Click here to report a bug for this page (MaRDI item Q2929372)