A note on the impact of parameter uncertainty on barrier derivatives
- This paper presents a comprehensive extension of pricing two-dimensional derivatives depending on two barrier constraints. We assume randomness on the covariance matrix as a way of generalizing. We analyse common barrier derivatives, enabling us to study parameter uncertainty and the risk related to the estimation procedure (estimation risk). In particular, we use the distribution of empirical parameters from IBM and EURO STOXX50. The evidence suggests that estimation risk should not be neglected in the context of multidimensional barrier derivatives, as it could cause price differences of up to 70%.
Download full text files
Additional Services
| Author: | Marcos Escobar, Sven Panz |
|---|---|
| URN: | urn:nbn:de:hebis:30:3-442216 |
| DOI: | https://doi.org/10.3390/risks4040035 |
| ISSN: | 2227-9091 |
| Parent Title (English): | Risks |
| Publisher: | MDPI |
| Place of publication: | Basel |
| Contributor(s): | Mogens Steffensen |
| Document Type: | Article |
| Language: | English |
| Date of Publication (online): | 2017/06/19 |
| Year of first Publication: | 2016 |
| Publishing Institution: | Universitätsbibliothek Johann Christian Senckenberg |
| Release Date: | 2017/06/19 |
| Tag: | barrier options; estimation risk; random covariance; structured products |
| Volume: | 4 |
| Issue: | 4, Art. 35 |
| Page Number: | 25 |
| First Page: | 1 |
| Last Page: | 25 |
| Note: | This is an open access article distributed under the Creative Commons Attribution License which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited. (CC BY 4.0). |
| HeBIS-PPN: | 430462530 |
| Institutes: | Wirtschaftswissenschaften / Wirtschaftswissenschaften |
| Dewey Decimal Classification: | 3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft |
| Sammlungen: | Universitätspublikationen |
| Licence (German): |  Creative Commons - Namensnennung 4.0 |
