Comparison of the Pricing Model for Different Types of options

Abstract

Contemporarily, option is one of the widely used underlying assets to hedge the risks and construct portfolio in finance field. As a matter fact, with different regulations and trading rules of various transaction center around the world, there are plenty of types of options. On account of the differences in the trading rules, the option pricing models vary a lot. On this basis, this study will select three common types of options (i.e., European option, American option, and Asian Option) in order to detailly demonstrate the differences in the pricing. To be specific, the formulae as well as the empirical analysis will be presented to vividly prove the statement. According to the analysis, the differences between the pricing procedure and models will be exhibited. In addition, the current drawbacks for the models will be illustrated and suggestions for further study will be clarified accordingly. Overall, these results shed light on guiding further exploration of option pricing from the theoretical as well as empirical sides.