Options pricing using OBV method Krzysztof Urbanowicz Quant - PowerPoint PPT Presentation

Options pricing using OBV method Krzysztof Urbanowicz Quant Technology

Difference between Black-Scholes theory and ObV theory Mr. Black and Mr. Scholes assume Winner process and as a consequence Normal distribution of returns. We assume more general form of Winner process and as a consequence Power-Law Distribution. In next slides we show difference in used distributions.

Probability Density Distributions – Normal Distribution 0.6 0.5 0.4 0.3 0.2 0.1 0

Probability Density Distributions – Power-Law Distribution 0.6 0.5 0.4 0.3 0.2 0.1 0

Probability Density Function (PDF) – fit to reality

Black-Scholes theory – behaviour of probable future prices in time 30 20 10 0 -10 -20 -30

ObV theory – behaviour of probable future prices in time 30 20 10 0 -10 -20 -30

ObV options pricing – Volatility Smile

ObV options pricing – Volatility Smile

ObV options pricing – Volatility Smile

Result of Delta Hedge Strategy based on Black-Scholes Model 10000000 5000000 0 -5000000 -10000000 -15000000

Result of Delta Hedge Strategy based on ObV Model 100000000 80000000 60000000 40000000 20000000 0 -20000000

Result of Delta Hedge Strategy based on ObV Model Results of backtest http://www.wonabru.com/options/backtest

Thank you. Further details http://www.wonabru.com