Comparison of asset pricing models using Icelandic stock data

The Black and Scholes (BS) model is well known and is widely considered as a staple in the stock price modeling. Back when it was introduced, the model offered an easy way of pricing European options, which was revolutionary at the time. The model is made on the assumption that stocks follow a geometrical Brownian motion. This makes the model simple to use, but at the same time, limits its accuracy in simulating real world stock behaviour. The Merton jump-diffusion (MJD) model is also made on the assumption that stocks follow a geometrical Brownian motion, but has an added "jump" component which follows a compound Poisson process. These two models were compared and their accuracy in simulating real world data was assessed through graphs and numbers. The main tools of the comparison were the density function outcome, and the skewness and kurtosis, according to the models. The outcome of this comparison shows that the MJD model manages to describe real world behaviour with much greater precision than the BS model, which is consistent with past research.

Author dc:creator

• Ólöf Embla Kristinsdóttir 1994-

Contributors dc:contributor

• Háskólinn í Reykjavík

• Fjármálaverkfræði
• Meistaraprófsritgerðir
• Hlutabréf
• Reiknilíkön
• Tækni- og verkfræðideild
• Financial engineering
• Mathematical models
• Bonds
• School of Science and Engineering

Language dc:language.iso

en

Handle dc:identifier.uri

http://hdl.handle.net/1946/33829

OAI identifier oai:identifier

oai:skemman.is:1946/33829