Object-oriented implementation of option pricing via Matlab: Monte Carlo approach

Tekin, Özge
There are many applications in finance and investment that require the use of methods, which involve time-consuming and laborious iterative calculations. Although closed-form solutions are available for some specific instruments, the valuation methods used in financial engineering in many other situations require analytical methods, which compute approximate solutions on computing environments. Option pricing is one of the most important and active topics in financial engineering, and there are many fundamental methods for numerous different type options in literature as well as in the derivative market. Close investigation of options shows, besides the underlying parameters, significant relation and similarities, even inheritance, such as options on options. On the other hand, investigation of the valuation methods reveals the use of similar fundamental algorithms, such as Monte Carlo technique or solving the corresponding partial differential equation. Therefore, a software environment for pricing financial derivatives should be as flexible as possible to modify and extend the options as well as methods for pricing them. Object-oriented principles and modeling techniques, which contains analysis, design and implementation, have to be utilized for such a goal. After having analyzed options and pricing methods, the classes and subclasses to design a hierarchy that forms the structure of those options and methods are to be organized. As the relation between classes is so tight that each individual unit, objects, must be qualified to sending or receiving information to other objects while being responsible for their own work. Many modern object-oriented programming languages are transferable from one to another. Hence, MATLAB is preferred in this study as it provides numerous built-in functions and is a very suitable platform to develop OOP based softwares.


Modelling and implementation of local volatility surfaces
Animoku, Abdulwahab; Yolcu Okur, Yeliz; Uğur, Ömür; Department of Financial Mathematics (2014)
In this thesis, Dupire local volatility model is studied in details as a means of modeling the volatility structure of a financial asset. In this respect, several forms of local volatility equations have been derived: Dupire's local volatility, local volatility as conditional expectation, and local volatility as a function of implied volatility. We have proven the main results of local volatility model discussed in the literature in details. In addition, we have also proven the local volatility model under ...
Investigation of fractional black scholes option pricing approaches and their implementations
Hergüner, Ecem; Uğur, Ömür; Department of Financial Mathematics (2015)
One of the fundamental research areas in the financial mathematics is option pricing. With the emergence of Black-Scholes model, the partial differential equations (PDE) for option pricing have started to be used widely. PDEs are adopted for both finding numerical and analytical solutions and developing new models for option pricing. One of the significant PDE is fractional Black-Scholes PDE. Essentially, a PDE can become non-local with fractionalization and this non-localization enables to expand the time ...
Comparative study of risk measures
Ekşi, Zehra; Körezlioğlu, Hayri; Department of Financial Mathematics (2005)
There is a little doubt that, for a decade, risk measurement has become one of the most important topics in finance. Indeed, it is natural to observe such a development, since in the last ten years, huge amounts of financial transactions ended with severe losses due to severe convulsions in financial markets. Value at risk, as the most widely used risk measure, fails to quantify the risk of a position accurately in many situations. For this reason a number of consistent risk measures have been introduced in...
OpenCL implementation of montgomery multiplication on FPGA /
Büyükşahin, Mehmet Ufuk; Bazlamaçcı, Cüneyt Fehmi; Department of Electrical and Electronics Engineering (2014)
Galois Field arithmetic has been used very frequently in popular security and errorcorrection applications. Montgomery multiplication is among the suitable methods used for accelerating modular multiplication, which is the most time consuming basic arithmetic operation. Montgomery multiplication is also suitable to be implemented in parallel. OpenCL, which is a portable, heterogeneous and parallel programming framework, is recently supported by a major FPGA vendor, Altera. Therefore it is now possible to ex...
Additional factor in asset-pricing: Institutional ownership
Uğurlu-Yıldırım, Ecenur; Şendeniz Yüncü, İlkay (Elsevier BV, 2020-01-01)
In this paper, we hypothesize that institutional investor variable is a proxy for some systematic risk factors, which should be incorporated into the asset-pricing model. Mimicking portfolio for institutional ownership, called IMI (Institutional minus Individual), is constructed. Including IMI to the Carhart's 4-factor model captures the common variations in returns better than all other models that are tested. Consistent with the literature, the new 5-factor model improves mispricing mostly in portfolios i...
Citation Formats
Ö. Tekin, “Object-oriented implementation of option pricing via Matlab: Monte Carlo approach,” M.S. - Master of Science, Middle East Technical University, 2015.