Constant Elasiticty of Variance

[optionshedge]

Hull mentions the CEV model in chapter 24 of his book.

Can you create a spreadsheet / screenshot explaining how to calculate option prices under the CEV model? How do you determine the appropriate CEV factor (alpha) for a particular equity?

 

[David Harper CFA FRM]

Hi options,

I used to work with this super-class of Black-Scholes, I will see if I can "dust off" an old XLS. But i can't promise timing: i need to currently prioritize FRM.

We used to simply apply a version of least squares: retrofit the model to historical data, find the params that minimize the least squares. My *severely dated* (several years) impression is that this is a thick academic sub-field, I think there are many improved methods, I certainly am not up to date on CEV param estimates. David