Linear regression for currency European call option pricing in incomplete markets

Ahmad W. Bitar ()
Additional contact information
Ahmad W. Bitar: LIST3N - MSAD - LIST3N - Modélisation, stochastique, apprentissage et décision - LIST3N - Laboratoire Informatique et Société Numérique - UTT - Université de Technologie de Troyes, UTT - Université de Technologie de Troyes

Working Papers from HAL

Abstract: The Least squares is the traditional regression technique for pricing European options in incomplete markets. However, the least squares is quite sensitive to even a single outlier in the data, and thus the predicted option price may potentially deviate from the true unknown one. To alleviate the problem of outliers, this paper aims to develop two different option pricing prediction strategies based mainly on the idea of robust linear regression. The robust techniques proposed are evaluated on numerical data, the results of which demonstrate their effectiveness for European call option pricing on exchange rates.

Keywords: Exchange rates Trinomial model European option pricing Least squares Robust linear regression; Exchange rates; Trinomial model; European option pricing; Least squares; Robust linear regression (search for similar items in EconPapers)
Date: 2025-01-05
Note: View the original document on HAL open archive server: https://utt.hal.science/hal-04815308v2
References: Add references at CitEc
Citations:

Downloads: (external link)
https://utt.hal.science/hal-04815308v2/document (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hal:wpaper:hal-04815308

Access Statistics for this paper

More papers in Working Papers from HAL
Bibliographic data for series maintained by CCSD ().