IDEAS home Printed from https://ideas.repec.org/a/eee/jocoma/v35y2024ics2405851324000278.html
   My bibliography  Save this article

Implied parameter estimation for jump diffusion option pricing models: Pricing accuracy and the role of loss and evaluation functions

Author

Listed:
  • Hilliard, Jimmy E.
  • Hilliard, Jitka
  • Ngo, Julie T.D.

Abstract

There is extensive literature on problems involved in estimating implied parameters in the Merton Jump Diffusion model. Using simulated data, we use weighted non-linear least squares to estimate implied parameters in the four parameter jump diffusion model (JD) and in an eight parameter jump diffusion model with convenience yield (JDC). We find reliable and accurate implied parameter estimates for the JD model but biased and unreliable estimates for some parameters in the JDC model. However, for both models we estimate accurate option prices, usually within several basis points. We also use Bitcoin real data to estimate parameters and test the out-of-sample performance of the JDC model.

Suggested Citation

  • Hilliard, Jimmy E. & Hilliard, Jitka & Ngo, Julie T.D., 2024. "Implied parameter estimation for jump diffusion option pricing models: Pricing accuracy and the role of loss and evaluation functions," Journal of Commodity Markets, Elsevier, vol. 35(C).
    • Handle: RePEc:eee:jocoma:v:35:y:2024:i:c:s2405851324000278
    DOI: 10.1016/j.jcomm.2024.100408
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S2405851324000278
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.jcomm.2024.100408?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:jocoma:v:35:y:2024:i:c:s2405851324000278. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/jcomm .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.