Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/167900
Authors: 
Escobar, Marcos
Panz, Sven
Year of Publication: 
2016
Citation: 
[Journal:] Risks [ISSN:] 2227-9091 [Volume:] 4 [Year:] 2016 [Issue:] 4 [Pages:] 1-25
Abstract: 
This paper presents a comprehensive extension of pricing two-dimensional derivatives depending on two barrier constraints. We assume randomness on the covariance matrix as a way of generalizing. We analyse common barrier derivatives, enabling us to study parameter uncertainty and the risk related to the estimation procedure (estimation risk). In particular, we use the distribution of empirical parameters from IBM and EURO STOXX50. The evidence suggests that estimation risk should not be neglected in the context of multidimensional barrier derivatives, as it could cause price differences of up to 70%.
Subjects: 
barrier options
estimation risk
random covariance
structured products
Persistent Identifier of the first edition: 
Creative Commons License: 
http://creativecommons.org/licenses/by/4.0/
Document Type: 
Article
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