Finite-maturity stock loans under the constant elasticity of variance model

ABSTRACT

This article expresses the constant elasticity of variance stock loans pricing formula in terms of the noncentral chi-square distribution. By using the numerical solutions of the integral equation for the early exit boundary, we calculated the valuation of the stock loans. Numerical analysis is carried out to establish explicitly the value of such a loan, as well as the loan amount and the fee for providing such a service.

KEYWORDS:

• Stock loans
• constant elasticity of variance
• noncentral Chi-Squared distribution
• integral equation

JEL CLASSIFICATION:

• G12
• G13
• G20

Disclosure statement

No potential conflict of interest was reported by the authors.

Additional information

Funding

The work was supported by Fund Project of Chongqing Normal University [Grant No. 17XWB021] and Science and Technology Research Projects of Chongqing Education Committee [Grant No. KJ15012004].