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Theory Research About Option Pricing Based On Behavioral Finance

Posted on:2006-03-02Degree:MasterType:Thesis
Country:ChinaCandidate:H J CaoFull Text:PDF
GTID:2179360185463413Subject:Probability theory and mathematical statistics
Abstract/Summary:PDF Full Text Request
Evading risk in financial trading market cries for pricing options to a nicety .The traditional theory of finance has trouble about explaining some acturalphenomenons, a new subject——has naissanced. On the base of the Prospect Theorywhich has been revamped, we obtain the common option pricing method. Assuming that investors pursue the maximal appetite. We emphasize, the carriers of value are relative changes in wealth, neigher changes nor absolute levels or final outcomes. And there are two securities traded one of which is riskless and the other is risky. In this article, we price the value of the options.1. European option pricng :On the base of the Prospect Theory, we get the continuous-time expression formula of two mental accounts by self-financing strategy. We do research for European option pricing by binomial tree, when we consider the influence of prior outcomes on risky choice.2. American options pricing:We do research for American option pricing by binomial tree, and use it to price the tenement-option.We have some innovations: we revampe the Prospect Theory and we get a bit breakthrough in ideology of model; we translate the some depiction of Prospect Theory into mathematic language, for example, we use the expression of (3.2.1) denoting the mental account; we try our best to pricing the European option using stochastic control, although we can not get the pricing formula, we get the partial differential equation of Φ(t,x), and also we give the method of the pricing of European option; we get the formula of pricing of European option, when we consider the investment-outstanding achievement effect pricing of European option; we do research for American option pricing by binomial tree, and use it to price the tenement-option.
Keywords/Search Tags:self-financing strategy, European option, Behavioral parameter, weight, American option, Prospect Theory
PDF Full Text Request
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