European Option Based on Least-Squares Method under Non-Extensive Statistical Mechanics
This paper is devoted to the study of the pricing of European options under a non-Gaussian model. This model follows a non-extensive statistical mechanics which can better describe the fractal characteristics of price movement in the financial market. Moreover, we present a simple but precise least-...
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| Format: | Article |
| Language: | English |
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MDPI AG
2019-09-01
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| Series: | Entropy |
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| Online Access: | https://www.mdpi.com/1099-4300/21/10/933 |
| _version_ | 1828281797220237312 |
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| author | Limin Liu Yingying Cui |
| author_facet | Limin Liu Yingying Cui |
| author_sort | Limin Liu |
| collection | DOAJ |
| description | This paper is devoted to the study of the pricing of European options under a non-Gaussian model. This model follows a non-extensive statistical mechanics which can better describe the fractal characteristics of price movement in the financial market. Moreover, we present a simple but precise least-square method for approximation and obtain a closed-form solution of the price of European options. The advantages of this technique are illustrated by numerical simulation, which shows that the least-squares method is better compared with Borland’s two methods in 2002 and 2004. |
| first_indexed | 2024-04-13T08:21:01Z |
| format | Article |
| id | doaj.art-39273b0a698c4ce1b7daad3fd24daed2 |
| institution | Directory Open Access Journal |
| issn | 1099-4300 |
| language | English |
| last_indexed | 2024-04-13T08:21:01Z |
| publishDate | 2019-09-01 |
| publisher | MDPI AG |
| record_format | Article |
| series | Entropy |
| spelling | doaj.art-39273b0a698c4ce1b7daad3fd24daed22022-12-22T02:54:38ZengMDPI AGEntropy1099-43002019-09-01211093310.3390/e21100933e21100933European Option Based on Least-Squares Method under Non-Extensive Statistical MechanicsLimin Liu0Yingying Cui1College of Mathematics and Information Science, Henan Normal University, Xinxiang 453007, ChinaCollege of Mathematics and Information Science, Henan Normal University, Xinxiang 453007, ChinaThis paper is devoted to the study of the pricing of European options under a non-Gaussian model. This model follows a non-extensive statistical mechanics which can better describe the fractal characteristics of price movement in the financial market. Moreover, we present a simple but precise least-square method for approximation and obtain a closed-form solution of the price of European options. The advantages of this technique are illustrated by numerical simulation, which shows that the least-squares method is better compared with Borland’s two methods in 2002 and 2004.https://www.mdpi.com/1099-4300/21/10/933european call optionnon-extensive statistical mechanicsleast-square methoderror analysis |
| spellingShingle | Limin Liu Yingying Cui European Option Based on Least-Squares Method under Non-Extensive Statistical Mechanics Entropy european call option non-extensive statistical mechanics least-square method error analysis |
| title | European Option Based on Least-Squares Method under Non-Extensive Statistical Mechanics |
| title_full | European Option Based on Least-Squares Method under Non-Extensive Statistical Mechanics |
| title_fullStr | European Option Based on Least-Squares Method under Non-Extensive Statistical Mechanics |
| title_full_unstemmed | European Option Based on Least-Squares Method under Non-Extensive Statistical Mechanics |
| title_short | European Option Based on Least-Squares Method under Non-Extensive Statistical Mechanics |
| title_sort | european option based on least squares method under non extensive statistical mechanics |
| topic | european call option non-extensive statistical mechanics least-square method error analysis |
| url | https://www.mdpi.com/1099-4300/21/10/933 |
| work_keys_str_mv | AT liminliu europeanoptionbasedonleastsquaresmethodundernonextensivestatisticalmechanics AT yingyingcui europeanoptionbasedonleastsquaresmethodundernonextensivestatisticalmechanics |