Modification And Application Of Option Pricing Model Based On Dynamic Method

As the financial derivatives play an increasingly important role in the market,the accuracy of the option pricing also gradually become a major focus in the financial sector to explore problems.B-S formula is the most widely used and classic formula to solve the problem of option pricing.However,due to the complex and unstable financial market environment,many assumptions of this model cannot be satisfied in practice,which leads to certain defects in describing the price movement of underlying assets.For example,the yield distribution of asset prices has a sharp peak and a thick tail,and the "volatility smile" and other phenomena.Therefore,on the one hand,in order to correct the deficiencies of B-S formula,better explain the market phenomenon;On the other hand,with the development of mathematical finance,many scholars consider using mature mathematical model to solve the financial problems,this article adopts the method of dynamic model,take the market supply and demand of to establish the basic equations,the option price change on the basis of the theory of ordinary differential equations to solve differential dynamic equations of the option price is meet,By analyzing the solution of the differential equation to judge the change trend of the option price to help investors enhance the grasp of the risk and the ability to predict the future market situation.In April 2020 the gem pilot registration system reform and the overall implementation plan ",to register system reform under the background of the gem,the predecessor of the proposed traditional theoretical model is no longer suitable,so this paper modified the European option pricing under the basic equation of dynamics method,the innovation to the market at the same time choose to focus on the growth enterprise market,Different pricing formulas have been established for China's multi-level capital markets,and new ideas have been put forward for the pricing of option products to be launched on GEM.The advantages of this option price model based on dynamics method are as follows: Firstly,Compared with B-S formula in the subordinate system of probability theory,this model belongs to the pricing model in the system of certainty theory.Its parameters can be obtained from the market information,and the mechanism of the pricing model is easier to understand and apply.Secondly,the model has high adaptability and can be modified according to different market conditions.The modification and application of this model provide a new perspective to solve the problem of option pricing,and it has a certain theoretical significance to perfect the study of option pricing in financial market.At the same time,the financial product price often are greatly influenced by external shocks,in order to obtain a better fitting effect,give full consideration to the market macroscopic and microscopic factors in this paper,according to the result of the influence of external shocks on the market to build the two external shock function,solved the respectively in small and medium-sized board and main board and gem different option price formula on the market.Finally,we select representative ETF products in two different markets respectively,and make a fitting analysis based on their historical trading data.At last,we have obtained the following conclusions : Firstly,through empirical test and analysis,it shows that the option pricing model based on dynamic method has good fitting effect in the market,and the fitting degree can reach more than 80% in both markets.Secondly,considering the external impact of option pricing model has better fitting effect,including exponential decay type external shock function for the sensitivity of the parameter is larger,both by comparison,triangular periodic external shock attenuation type function better fitting effect in the market,mainly due to the market reaction to external information will appear the phenomenon of excessive and form.