Monotonic transformation and recovering the implied stock price process

Decisions in Economics and Finance(2024)

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摘要
The paper demonstrates the construction of a stock price stochastic process that aligns with observed option prices, drawing inspiration from a manuscript by Professor Erio Castagnoli that employs the concept of a non-linear monotonic transformation of a standard Brownian motion. The paper includes a detailed numerical example that illustrates the implementation of this straightforward and ingenious idea.
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关键词
Brownian motion,Implied volatility surface,Monte Carlo simulation,Black-Scholes model,35K99,65D05,35K99,65D05
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