Economics at your fingertips  

Psychological Barriers and Option Pricing

Bong‐Gyu Jang, Changki Kim, Kyeong Tae Kim, Seungkyu Lee and Dong‐Hoon Shin

Journal of Futures Markets, 2015, vol. 35, issue 1, 52-74

Abstract: Psychological barriers are prevalent among various asset classes, and it is important to consider their impact on the prices of derivative securities. This paper demonstrates the potential existence of such barriers on the S&P 500 Index and examines their impact on this index's rate of return and volatility. It focuses on deriving analytic European option prices under the assumption that the dynamics of stock prices follow a threshold model; this paper also evaluates this model's empirical performance relative to the Black–Scholes and constant elasticity of variance (CEV) models. The in‐sample calibration result of the threshold model is found to be superior. Furthermore, it is found that the model provides an efficient hedging method in terms of dollar‐value hedging errors. © 2013 Wiley Periodicals, Inc. Jrl Fut Mark 35:52–74, 2015

Date: 2015
References: Add references at CitEc
Citations: View citations in EconPapers (3) Track citations by RSS feed

Downloads: (external link)

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:

Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=0270-7314

Access Statistics for this article

Journal of Futures Markets is currently edited by Robert I. Webb

More articles in Journal of Futures Markets from John Wiley & Sons, Ltd.
Bibliographic data for series maintained by Wiley Content Delivery ().

Page updated 2019-03-19
Handle: RePEc:wly:jfutmk:v:35:y:2015:i:1:p:52-74