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Dijital Arşivi

Pricing European FX options by heston model calibrated with historical spot prices

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dc.contributor Graduate Program in Industrial Engineering.
dc.contributor.advisor Güllü, Refik.
dc.contributor.author Sülük, Havva.
dc.date.accessioned 2023-03-16T10:29:14Z
dc.date.available 2023-03-16T10:29:14Z
dc.date.issued 2017.
dc.identifier.other IE 2017 S87
dc.identifier.uri http://digitalarchive.boun.edu.tr/handle/123456789/13377
dc.description.abstract In this thesis, European type of FX call and put options are priced by two methods, Black and Scholes Model and Heston Model. Despite the fact that Black and Scholes is widely used by finance environment, the volatility of the underlying asset is ignored and assumed to be constant. However, since this assumption does not reflect the real market behavior, European options are priced by Heston model which consider that the volatility is stochastic, not constant. Heston model parameters are calibrated by using historical EUR/TL exchange rates with the Maximum Likelihood Estimation (MLE) method. The calibrated parameters are used in a simulation algorithm in order to forecast the future EUR/TL exchange rates. This is done to observe whether estimated parameters are usable in the option pricing procedure. Then, European FX call and put options are priced for given spot and strike prices, domestic and foreign interest rates and maturities. Black and Scholes model is also used for option pricing in order to compare the performances of the two models. Furthermore, model prices are compared to the real market prices. The deviations between the model prices and real prices are tried to be explained by a Root Mean Square Error and Average Relative Percentage Error analysis. The computational results show that the Heston Model outperforms the Black and Scholes model.
dc.format.extent 30 cm.
dc.publisher Thesis (M.A.) - Bogazici University. Institute for Graduate Studies in the Social Sciences, 2017.
dc.subject.lcsh Finance -- Mathematical models.
dc.subject.lcsh Options (Finance) -- Prices -- Mathematical models.
dc.title Pricing European FX options by heston model calibrated with historical spot prices
dc.format.pages xv, 91 leaves ;


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