Parametric Pricing of Higher Order Moments in S&p500 Options
Lim, G.C.
Martin, Gael M.
Martin, V.L.
10.4225/03/5934b4624c6b2
https://monash.figshare.com/articles/Parametric_Pricing_of_Higher_Order_Moments_in_S_p500_Options/5072338
A general parametric framework is developed for pricing S&P500 options. Skewness and leptokurtosis in stock returns as well as time-varying volatility are priced. The parametric pricing model nests the Black-Scholes model and can explain volatility smiles and skews in stock options. The data consist of S&P500 options traded on select days in April, 1995, a total sample of over 500,000 observations. A number of performance criteria are used to evaluate the alternative models. The empirical results show that pricing higher order moments yield improvements in the pricing of options over the Black-Scholes model as well as other models.
2017-06-05 01:31:11
skewness
generalised Student t
1959.1/2307
2002
kurtosis and time-varying volatility
Option pricing
volatility smiles and skews
monash:2307