American Option pricing with Bayesian Monte Carlo Path (2024)

License

Multipath computation of American option prices and confidence limits based on statistics
A probability distribution is calculated from a past stock chart and the fat tails are estimated. The distribution , unique to every stock chart, is used to generate an arbitrary number of paths into the future (3000 by default) and 50% and 80% and 98% confidence intervals are calculated and displayed. A computation of the most probable call to put ratio is calculated and used to generate a Most Probable Win percentage per day. The final absolute probability of winning at the 98% level is used to calculate the Kelly Criterion multiplied by 0.92 in the Risk Analysis section of the figure. This simulation differs significantly from Black Scholes and is more accurate. Every stock has its own probability distribution in the past. Care should be taken to note that market conditions can change abruptly in the future and distributions can be significantly altered over a short time frame by global market events, Intra-day distributions can be remarkably different from end of day distributions, so the results may vary from real world trading but it is probably the most accurate look ahead in stable markets that we are going to get with a mathematical approach. Care and attention to liquidity , volume and volatility should be observed.
Stock Forecasting and American Option pricing compared to Black- Scholes(BS) using Bayesian Markov Monte Carlo Simulation and Wavelet or Fourier or Neural Network Extrapolation with Indicators..http://library.wolfram.com/infocenter/MathSource/9086/ for more information!
If you use the alternate program as well, Bayesian Markov Stochastic Monte Carlo Valuation of Integrated Price Volume Action with Kelly Criterion, the kelly values from that program should be more accurate as an assessment of volume trends are also incorporated and we all know how important liquidity is. An expert using both programs will be a better judge just before an earnings announcement. A Fourier extrapolation is also carried out, but is only valid if it is supported in the range by the Statistical look ahead! The extrapolation is important for assessment of trends and cycles!

Cite As

Chondrally (2024). American Option pricing with Bayesian Monte Carlo Path (https://www.mathworks.com/matlabcentral/fileexchange/56352-american-option-pricing-with-bayesian-monte-carlo-path), MATLAB Central File Exchange. Retrieved July 8, 2024.

Requires

• MATLAB
• Curve Fitting Toolbox
• Database Toolbox
• Financial Toolbox
• Optimization Toolbox
• Signal Processing Toolbox
• Statistics and Machine Learning Toolbox
• Wavelet Toolbox

run optionprices.m after loading this file. Make sure the path points to the folder containing these files.. A zero for the strike price will calculate options AT THE MONEY.need 4GB memory and at least a 2GHz processor

MATLAB Release Compatibility

Created with R2016b

Compatible with any release

Platform Compatibility

Windows macOS Linux

Categories

• AI, Data Science, and Statistics > Curve Fitting Toolbox > Fit Postprocessing >
• Computational Finance > Financial Toolbox > Price and Analyze Financial Instruments >
• Computational Finance > Financial Toolbox > Stochastic Differential Equation (SDE) Models >

Acknowledgements

Inspired: Bayesian Monte Carlo Valuation of Price Volume Action

• calculateconflevels
• calculatefuturevalues
• generatemagphase
• generateTemperatures
• getdata
• getdist
• getintegrate2
• getpdf5
• getpercenterrorcubic
• getpercenterrorlinear
• getPercentErrorLinear3
• googleprices
• MusicFinal
• optionprices.m