Oct 2026· Exploring Science Academic Conference Series· Vol 17, pp. 452-458· 0 citations· 19 references
Stochastic processes and financial applications
Abstract
Option pricing theory is a cornerstone of modern financial engineering, but the classical Black-Scholes framework relies on continuous price trajectories, constant volatility, and lognormally distributed returns. These assumptions are difficult to reconcile with empirical features such as volatility smiles, fat-tailed returns, volatility clustering, and abrupt price movements. This review examines the evolution of Option pricing models from the Black-Scholes benchmark to stochastic-volatility, jump-diffusion, stochastic-volatility-jump, and affine jump-diffusion specifications. It shows that richer models generally improve cross-sectional pricing accuracy, especially for short-maturity and out-of-the-money options, but that this improvement is accompanied by higher parameter uncertainty, calibration complexity, and hedging instability. The review further emphasizes that evidence from emerging markets, particularly China’s domestic derivatives market, remains comparatively limited and may require models that account for liquidity constraints, retail participation, and clustered jump behavior.
With the increase in uncertainty of the modern financial market, so too has the problem of derivative pricing risen. Traditionally, the Black-Scholes model has been a solid theoretical model. However, it relies on idealized assumptions such as constant volatility and continuous asset price movements. I In reality, fina...
Ke Mo· Advances in Economics, Manag...· 0 citations
Financial derivatives occupy a core position in modern asset allocation, but the traditional option pricing framework, particularly the Black-Scholes (B-S) model, faces unprecedented challenges when applied to the highly volatile cryptocurrency market. The B-S assumption of constant volatility and continuous price path...
: This paper develops a comprehensive theoretical framework for option pricing in dynamic markets characterized by volatility fluctuations, regime changes, and risk sensitivities (Greeks). While the Black – Scholes model assumes constant volatility, real markets exhibit volatility smiles, skews, jumps, and distinct reg...
Cheng-Ze Song· Proceedings of the 1st Inter...· 0 citations
Option pricing can be viewed as a trade-off among pricing accuracy, model stability, interpretability, arbitrage consistency, computational latency, and data requirements.
Shu-Ya Lu· Proceedings of the 1st Inter...· 0 citations
: Options have become indispensable instruments for both risk management and speculation, with volatility serving as a fundamental input in pricing structures. While Historical Volatility (HV) relies on past returns, it is inherently backward-looking and fails to reflect forward-looking market expectations, investor se...
Guangsirui Zhai· Proceedings of the 1st Inter...· 0 citations
: This study expands the Black – Scholes option pricing model by assuming volatility is deterministically evolving over time. The traditional formulation assumes constant volatility, which is inconsistent with empirical studies showing predictable changes during periods of market uncertainty (e.g., macro announcements,...
Can Liu· Proceedings of the 1st Inter...· 0 citations