In this paper, we develop an executive stock option pricing model with a volatility estimated by SV-GED model, involving both the features of the stock return volatility and the abnormal fluctuation of the stock price at the expiration date. The estim...
In this paper, we develop an executive stock option pricing model with a volatility estimated by SV-GED model, involving both the features of the stock return volatility and the abnormal fluctuation of the stock price at the expiration date. The estimates of the parameters in SV-GED model are given using Markov Chain Monte Carlo method with Shanghai and Shenzhen 300 Index as samples. And the comparison analysis on the option values between classical B-S models and the models with a volatiligy under SV-GED model are offered. The results show that SV-GED model has greater veracity in describing the volatility of stock market return. And great disecrepancy exists between the option values under SV-GED model and B-S model, wihich varies along with the discrepancy between the underlying stock price at the expiration date and the strike price in the option.