Pricing Options of Security Portfolio in Cyclical Economic Environment

Abstract

In this article, we present two option pricing models of optimal security portfolio in real world measure. We use multi-Vasicek model to describe the change pattern of the return of security portfolio with time varying correlation. Explicit expressions of call and put option prices are obtained. Numerical analysis is carried out and several important conclusions are obtained. The results show that there exists difference of option price with our new models and extended Black Scholes model. The results also show that our new model II is a more realistic option pricing model of security portfolio in real world measure.