Explore option pricing methodologies in this 51-minute conference talk from the Peter Carr Memorial Conference at New York University. Delve into both bottom-up and top-down approaches, examining the classic derivative pricing method and its drawbacks. Discover time-changed Levy processes, top-down value representation, and P&L attribution. Learn about applying no dynamic arbitrage conditions, common market pricing on separate risk estimates, and linear cross-sectional option pricing models. Analyze average implied volatility surface variation, mean absolute pricing errors, and statistical arbitrage trading strategies. Gain insights into market pricing estimates and risk portfolio returns in this comprehensive exploration of option pricing techniques.
Overview
Syllabus
Intro
Option pricing bottom-up and top-down
The dassic bottom-up approach of derivative pricing
Time-changed Levy process as an assembly line
Drawbacks of the dassic bottom-up approach
A top-down perspective of option pricing
The top-down value representation
The top-down P&L attribution
Applying the no dynamic arbitrage condition
Common market pricing on separate risk estimates
A Ninear cross-sectional option pricing model
The average implied volatility surface variation (@)
Mean absolute pricing errors
Statistical arbitrage trading on the pricing errors
Market pricing estimates and risk portfolio returns
Concluding remarks
Taught by
NYU Tandon School of Engineering
