Stochastic analysis on option pricing and risks controlling in a stock market

Authors:
Yan Wang;Jun Wang;Bingtuan Wang
Affiliations:
College of Science, Beijing Jiaotong University, Beijing, China;College of Science, Beijing Jiaotong University, Beijing, China;College of Science, Beijing Jiaotong University, Beijing, China
Venue:
IMCAS'09 Proceedings of the 8th WSEAS international conference on Instrumentation, measurement, circuits and systems
Year:
2009

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Abstract

In this paper, the stochastic system is applied to describe and study the fluctuations of stock prices in a stock market, and a stock price model is modeled by the statistical method, further the jump of price changing is introduced into this financial model by applying the contact process theory. For this financial model, the contingent claim pricing and hedging of European call option are discussed, and the formula of pricing a European calls option with the risk neutral condition is obtained. Then we investigate the statistical properties of the risks controlling for the market, we study the range of European call option in a risk-averse market and give the corresponding option pricing bounds.