Pricing European call options under a hard-to-borrow stock model

Ma, Guiyuan; Zhu, Song‐Ping; Chen, Wenting

doi:10.1016/j.amc.2019.04.002

Cited by 5 publications

(8 citation statements)

References 16 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…In other words, the optimal exercise price is a two dimensional function of both t and x. The boundary conditions in the x direction are similar to those in the European case provided by Ma et al (2017). When x approaches −∞, it indicates that buy-in never occurs and thus there are no jumps in the stock price.…”

Section: The Pde System With Boundary Conditionsmentioning

confidence: 90%

“…In this paper, we would first consider the early exercise premium to determine whether or not an American call option should be exercised early and then produce the optimal exercise price to make it clear when it should be exercised. The values of an American call option written on the hard-to-borrow stock can be calculated as we presented in the previous section; while the values for a European call option have been obtained by Ma et al (2017). These values are shown and compared in Figure 1.…”

Section: Discussion On Early Exercise Of An American Call Optionmentioning

confidence: 99%

“…Such a theoretical study under the A&L model would complement the Jensen and Pedersen's study, where the Black-Scholes model with short-sale costs was considered. As a preparation for this paper, Ma et al (2017) first established a partial differential equation (PDE) system to price European call options under the A&L model. By comparing the results obtained from the PDE system with those from the semi-explicit pricing formula obtained by Avellaneda and Lipkin, the correctness of the PDE system has been demonstrated.…”

Section: Introductionmentioning

confidence: 99%

See 2 more Smart Citations

Pricing American call options under a hard-to-borrow stock model

Ma¹,

Zhu²

2017

Eur. J. Appl. Math

Self Cite

View full text Add to dashboard Cite

While a classic result by Merton (1973,Bell J. Econ. Manage. Sci., 141–183) is that one should never exercise an American call option just before expiration if the underlying stock pays no dividends, the conclusion of a very recent empirical study conducted by Jensen and Pedersen (2016,J. Financ. Econ.121(2), 278–299) suggests that one should ‘never say never’. This paper complements Jensen and Pedersen's empirical study by presenting a theoretical study on how to price American call options under a hard-to-borrow stock model proposed by Avellaneda and Lipkin (2009,Risk22(6), 92–97). Our study confirms that it is the lending fee that results in the early exercise of American call options and we shall also demonstrate to what extent lending fees have affected the early exercise decision.

show abstract

Section: The Pde System With Boundary Conditionsmentioning

confidence: 90%

Section: Discussion On Early Exercise Of An American Call Optionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

See 1 more Smart Citation

Pricing American call options under a hard-to-borrow stock model

Ma¹,

Zhu²

2017

Eur. J. Appl. Math

Self Cite

View full text Add to dashboard Cite

show abstract

“…The risk-neutral measure was formally obtained by Guiyuan Ma [6]. To conduct measure transform, Guiyuan Ma defined two new processes as…”

Section: Risk-neutral Measurementioning

confidence: 99%

“…The numerical comparison indicates that the modified Laplace transform method outperforms the modified FDMs. Guiyuan Ma, Song-ping Zhu, Wenting Chen [6] studied European call option pricing problem under the HTB model. Through their numerical results, they find that the semi-explicit formula is a good approximate solution when the coupling parameter is small.…”

Section: Introductionmentioning

confidence: 99%

Change of measure under the hard-to-borrow model

Liu

2020

Preprint

View full text Add to dashboard Cite

As the Securities and Exchange Commission(SEC) has implemented a new regulation on short-sellings, short-sellers are required to repurchase stocks once the clearing risk rises to a certain level. Avellaneda and Lipkin proposed a fully coupled SDE system to describe the mechanism which is referred as Hard-To-Borrow(HTB) models. Guiyuan Ma obtained the PDE system for both American and European options. There is a technical error in Guiyuan Ma where two correlated Brownian motion should be converted before change of measure. In this paper, I will provide supplement conditions.

show abstract

Credit default swap pricing with counterparty risk in a reduced form model with a common jump process

Chen

Xing

2022

Prob. Eng. Inf. Sci.

View full text Add to dashboard Cite

In this paper, we study the credit default swap (CDS) pricing with counterparty risk in a reduced form model. The default jump intensities of the reference firm and counterparty are both assumed to follow the mean-reverting CIR processes with independent jumps respectively and a common jump. The approximate closed-form solutions of the joint survival probability density and the probability density of the first default can be obtained by using the PDE method. Then with the expressions of the probability densities, we can get the formula for the CDS price with counterparty risk in a reduced form model with a common jump. In the numerical analysis part, we find that the default of the reference asset has a greater impact on the CDS price than that of the default of counterparty after introducing the common jump process.

show abstract

Pricing European call options under a hard-to-borrow stock model

Cited by 5 publications

References 16 publications

Pricing American call options under a hard-to-borrow stock model

Pricing American call options under a hard-to-borrow stock model

Change of measure under the hard-to-borrow model

Credit default swap pricing with counterparty risk in a reduced form model with a common jump process

Contact Info

Product

Resources

About