{"id":248,"date":"2016-10-03T11:50:43","date_gmt":"2016-10-03T11:50:43","guid":{"rendered":"http:\/\/www.ghoddusi.com\/Academic_Website\/WP\/?p=248"},"modified":"2019-04-05T11:54:53","modified_gmt":"2019-04-05T11:54:53","slug":"new-publication-volatility-can-be-detrimental-to-option-values","status":"publish","type":"post","link":"https:\/\/www.ghoddusi.com\/Academic_Website\/WP\/2016\/10\/03\/new-publication-volatility-can-be-detrimental-to-option-values\/","title":{"rendered":"New Publication: Volatility Can be Detrimental to Option Values!"},"content":{"rendered":"<p>Economics Letters, joint work with Arash Fahim<\/p>\n<p>Abstract:\u00a0The value of digital options (both European and American types) can have an inverse-U shape relationship with the volatility of the underlying process! This seemingly counterintuitive proposition is driven by a particular feature of Maringale processes bounded from below (including the Geometric Brownian Motion (GBM) ). We show that in such processes a higher variance parameter may reduce the probability mass of realizations above the expected value. When the volatility approaches infinity, the probability of hitting a barrier above the mean goes to zero. Our finding is in contrast to the common belief that a higher volatility increases all option values. Digital options are observed in a variety of economics applications, including mortgage tax, emission fines, venture capital, and credit risk models.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Economics Letters, joint work with Arash Fahim Abstract:\u00a0The value of digital options (both European and American types) can have an inverse-U shape relationship with the volatility of the underlying process! This seemingly counterintuitive proposition is driven by a particular feature of Maringale processes bounded from below (including the Geometric Brownian Motion (GBM) ). We show &#8230;<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"nf_dc_page":"","footnotes":""},"categories":[1],"tags":[],"class_list":["post-248","post","type-post","status-publish","format-standard","hentry","category-general"],"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/www.ghoddusi.com\/Academic_Website\/WP\/wp-json\/wp\/v2\/posts\/248","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.ghoddusi.com\/Academic_Website\/WP\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.ghoddusi.com\/Academic_Website\/WP\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.ghoddusi.com\/Academic_Website\/WP\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.ghoddusi.com\/Academic_Website\/WP\/wp-json\/wp\/v2\/comments?post=248"}],"version-history":[{"count":2,"href":"https:\/\/www.ghoddusi.com\/Academic_Website\/WP\/wp-json\/wp\/v2\/posts\/248\/revisions"}],"predecessor-version":[{"id":272,"href":"https:\/\/www.ghoddusi.com\/Academic_Website\/WP\/wp-json\/wp\/v2\/posts\/248\/revisions\/272"}],"wp:attachment":[{"href":"https:\/\/www.ghoddusi.com\/Academic_Website\/WP\/wp-json\/wp\/v2\/media?parent=248"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.ghoddusi.com\/Academic_Website\/WP\/wp-json\/wp\/v2\/categories?post=248"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.ghoddusi.com\/Academic_Website\/WP\/wp-json\/wp\/v2\/tags?post=248"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}