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Statistical Distributions, European Option, American Option, and Option Bounds

In: HANDBOOK OF FINANCIAL ECONOMETRICS, MATHEMATICS, STATISTICS, AND MACHINE LEARNING

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  • Cheng Few Lee

Abstract

In this chapter, we first review the basic theory of normal and log-normal distribution and their relationship, then bivariate and multivariate normal density function are analyzed in detail. Next, we discuss American options in terms of random dividend payment. We then use bivariate normal density function to analyze American options with random dividend payment. Computer programs are used to show how American co-options can be evaluated. Finally, pricing option bounds are analyzed in some detail.

Suggested Citation

  • Cheng Few Lee, 2020. "Statistical Distributions, European Option, American Option, and Option Bounds," World Scientific Book Chapters, in: Cheng Few Lee & John C Lee (ed.), HANDBOOK OF FINANCIAL ECONOMETRICS, MATHEMATICS, STATISTICS, AND MACHINE LEARNING, chapter 85, pages 2929-2964, World Scientific Publishing Co. Pte. Ltd..
    • Handle: RePEc:wsi:wschap:9789811202391_0085
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    More about this item

    Keywords

    Financial Econometrics; Financial Mathematics; Financial Statistics; Financial Technology; Machine Learning; Covariance Regression; Cluster Effect; Option Bound; Dynamic Capital Budgeting; Big Data;
    All these keywords.

    JEL classification:

    • C01 - Mathematical and Quantitative Methods - - General - - - Econometrics
    • C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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