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Option Pricing

Option Pricing. Nagornov Alexander Parkhomenko Alexander Bakoro Jali Ahmed Sohail. Real Estate Price Model. Change in Prices is not a random walk Illiquid Market, Huge Transaction Costs Given this we cannot use Black-Scholes-Merton model.

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Option Pricing

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  1. Option Pricing Nagornov Alexander Parkhomenko Alexander Bakoro Jali Ahmed Sohail

  2. Real Estate Price Model • Change in Prices is not a random walk • Illiquid Market, Huge Transaction Costs • Given this we cannot use Black-Scholes-Merton model. • But we can price an option as we can predict returns – expected returns and volatility

  3. Projections from model - returns

  4. Projections from model - volatility

  5. Estimates of Price Model #1

  6. Estimates of Price Model #2

  7. Pricing an Option

  8. One year put for the Netherlands

  9. Life-Event-Triggered Insurance Policies • Some key assumptions: • Life events are exogenous and predictable for the average policyholder • Put option pricing formula is used as described above • a – a proportion of policies that is cancelled each period • b – a proportion of all policyholders that become eligible for a claim • The parameters are generated as follows: Then a weighted sum of put options will be: Given that present value of one dollar per year insurance premium is

  10. Intermediate Results for the Netherlands

  11. Results for the Netherlands and Noordoost-Groningen

  12. Thank you for attention!

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