Pricing a Bermudan option under the constant elasticity of variance model

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dc.contributor.advisorMcWalter, Thomasen_ZA
dc.contributor.advisorRudd, Ralphen_ZA
dc.contributor.authorRwexana, Kwakuen_ZA
dc.date.accessioned2018-02-07T09:10:04Z
dc.date.available2018-02-07T09:10:04Z
dc.date.issued2017en_ZA
dc.description.abstractThis dissertation investigates the computational efficiency and accuracy of three methodologies in the pricing of a Bermudan option, under the constant elasticity of variance (CEV) model. The pricing methods considered are the finite difference method, least squares Monte Carlo method and recursive marginal quantization (RMQ) method. Specific emphasis will be on RMQ, as it is the most recent method. A plain vanilla European option is initially priced using the above mentioned methods, and the results obtained are compared to the Black-Scholes option pricing formula to determine their viability as pricing methods. Once the methods have been validated for the European option, a Bermudan option is then priced for these methods. Instead of using the Black-Scholes option pricing formula for comparison of the prices obtained, a high-resolution finite difference scheme is used as a proxy in the absence of an analytical solution. One of the main advantages of the recursive marginal quantization (RMQ) method is that the continuation value of the option is computed at almost no additional computational cost, this with other contributing factors leads to a computationally efficient and accurate method for pricing.en_ZA
dc.identifier.apacitationRwexana, K. (2017). <i>Pricing a Bermudan option under the constant elasticity of variance model</i>. (Thesis). University of Cape Town ,Faculty of Commerce ,Division of Actuarial Science. Retrieved from http://hdl.handle.net/11427/27374en_ZA
dc.identifier.chicagocitationRwexana, Kwaku. <i>"Pricing a Bermudan option under the constant elasticity of variance model."</i> Thesis., University of Cape Town ,Faculty of Commerce ,Division of Actuarial Science, 2017. http://hdl.handle.net/11427/27374en_ZA
dc.identifier.citationRwexana, K. 2017. Pricing a Bermudan option under the constant elasticity of variance model. University of Cape Town.en_ZA
dc.identifier.ris TY - Thesis / Dissertation AU - Rwexana, Kwaku AB - This dissertation investigates the computational efficiency and accuracy of three methodologies in the pricing of a Bermudan option, under the constant elasticity of variance (CEV) model. The pricing methods considered are the finite difference method, least squares Monte Carlo method and recursive marginal quantization (RMQ) method. Specific emphasis will be on RMQ, as it is the most recent method. A plain vanilla European option is initially priced using the above mentioned methods, and the results obtained are compared to the Black-Scholes option pricing formula to determine their viability as pricing methods. Once the methods have been validated for the European option, a Bermudan option is then priced for these methods. Instead of using the Black-Scholes option pricing formula for comparison of the prices obtained, a high-resolution finite difference scheme is used as a proxy in the absence of an analytical solution. One of the main advantages of the recursive marginal quantization (RMQ) method is that the continuation value of the option is computed at almost no additional computational cost, this with other contributing factors leads to a computationally efficient and accurate method for pricing. DA - 2017 DB - OpenUCT DP - University of Cape Town LK - https://open.uct.ac.za PB - University of Cape Town PY - 2017 T1 - Pricing a Bermudan option under the constant elasticity of variance model TI - Pricing a Bermudan option under the constant elasticity of variance model UR - http://hdl.handle.net/11427/27374 ER - en_ZA
dc.identifier.urihttp://hdl.handle.net/11427/27374
dc.identifier.vancouvercitationRwexana K. Pricing a Bermudan option under the constant elasticity of variance model. [Thesis]. University of Cape Town ,Faculty of Commerce ,Division of Actuarial Science, 2017 [cited yyyy month dd]. Available from: http://hdl.handle.net/11427/27374en_ZA
dc.language.isoengen_ZA
dc.publisher.departmentDivision of Actuarial Scienceen_ZA
dc.publisher.facultyFaculty of Commerceen_ZA
dc.publisher.institutionUniversity of Cape Town
dc.subject.otherMathematical Financeen_ZA
dc.titlePricing a Bermudan option under the constant elasticity of variance modelen_ZA
dc.typeMaster Thesis
dc.type.qualificationlevelMasters
dc.type.qualificationnameMPhilen_ZA
uct.type.filetypeText
uct.type.filetypeImage
uct.type.publicationResearchen_ZA
uct.type.resourceThesisen_ZA
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