Parametric properties of semi-nonparametric distributions, with applications to option valuation

Ángel León (), Javier Mencia () and Enrique Sentana
Additional contact information
Ángel León: Universidad de Alicante

No 707, Working Papers from Banco de España

Abstract: We derive the statistical properties of the SNP densities of Gallant and Nychka (1987). We show that these densities, which are always positive, are more flexible than truncated Gram-Charlier expansions with positivity restrictions. We use the SNP densities for financial derivatives valuation. We relate real and risk-neutral measures, obtain closed-form prices for European options, and analyse the semiparametric properties of our pricing model. In an empirical application to S&P500 index options, we compare our model to the standard and Practitioner's Black-Scholes formulas, truncated expansions, and the Generalised Beta and Variance Gamma models.

Keywords: kurtosis; density expansions; gram-charlier; skewness; s&p index options (search for similar items in EconPapers)
JEL-codes: C16 G13 (search for similar items in EconPapers)
Pages: 60 pages
Date: 2007-03
New Economics Papers: this item is included in nep-ecm
References: Add references at CitEc
Citations: View citations in EconPapers (12)

Downloads: (external link)
http://www.bde.es/f/webbde/SES/Secciones/Publicaci ... o/07/Fic/dt0707e.pdf First version, March 2007 (application/pdf)

Related works:
Journal Article: Parametric Properties of Semi-Nonparametric Distributions, with Applications to Option Valuation (2009)
Working Paper: Parametric properties of semi-nonparametric distributions, with applications to option valuation (2007)
Working Paper: Parametric Properties of Semi-Nonparametric Distributions, with Applications to Option Valuation (2005)
Working Paper: Parametric Properties of Semi-Nonparametric Distributions, With Applications to Option Valuation (2005)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bde:wpaper:0707

Access Statistics for this paper

More papers in Working Papers from Banco de España Contact information at EDIRC.
Bibliographic data for series maintained by Ángel Rodríguez. Electronic Dissemination of Information Unit. Research Department. Banco de España ().