Research On Geometric Asian Option Pricing Based On Credit Rating Asset Price Model

Risk is inherent in financial transaction activities.How to effectively avoid and reduce the impact of risk is one of the core issues in capital market research.In financial market,risk can be roughly divided into two categories: quantifiable risk and non-quantitative risk.risk.The quantifiable risks are mainly market risk and credit risk.For non-quantitative risks,market participants can pay attention to related operational risks and legal risks.In this thesis,the focus is on quantitative risk,especially credit risk,and will focus on the impact of such risks on asset prices,as well as on Asian option prices.Most option pricing models are based on the traditional Black-Scholes(B-S)asset price model.Although the B-S asset price model provides a good benchmark for changes in underlying assets,many empirical data show that the logarithm of asset prices does not satisfy normal random fluctuations,especially for asset price processes related to different economic entities,it is unreasonable to think that all of them obey the same price fluctuation process.The relevant asset quality of different economic entities can be measured by credit rating.Credit rating is a comprehensive evaluation of different economic entities made by an independent third-party institution,including the economic entity’s operating conditions,industry,future development space,financial Comprehensive evaluation of a series of indicators such as the situation.Changes in credit ratings may indicate changes in asset quality,which affect the asset price process in turn.In some researches,there are also believed that changes in credit ratings will bring about fluctuations in asset prices.In this point,this thesis studies the pricing of Asian options under the asset price model with credit ratings,and discusses the impact of credit rating fluctuations on option prices.First of all,it mainly introduces the development of the derivatives pricing theory with credit risk.Secondly,this thesis briefly introduces the main features and functions of credit rating,and focuses on some scholars’ research on credit rating on asset price fluctuations.Thirdly,through the comprehensive analysis of the change of credit rating,select a reasonable stochastic differential equation to describe it.Finally,the problem of Asian option pricing based on the credit rating model is deduced intensively.In this thesis,the risk-neutral pricing principle is used for pricing,and the corresponding probability and expected value are obtained by solving the characteristic function in it,and the corresponding probability and expected value are obtained by Fourier transform.Solutions for geometric Asian options.In order to obtain more intuitive research results and research continuity,this thesis also studies the influence of credit rating on the price of Asian options characterized by CIR through Monte Carlo simulation.The pricing of geometric Asian options under the B-S model is also simulated.