A Non-Parametric Option Pricing Model: Theory and Empirical Evidence

Ren-Raw Chen () and Oded Palmon ()

Review of Quantitative Finance and Accounting, 2005, vol. 24, issue 2, 115-134

Abstract: In this paper, we propose an empirically-based, non-parametric option pricing model to evaluate S&P 500 index options. Given the fact that the model is derived under the real measure, an equilibrium asset pricing model, instead of no-arbitrage, must be assumed. Using the histogram of past S&P 500 index returns, we find that most of the volatility smile documented in the literature disappears. Copyright Springer Science + Business Media, Inc. 2005

Keywords: options; implied volatility; volatility smile; nonparametric model (search for similar items in EconPapers)
Date: 2005
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Citations: View citations in EconPapers (4)

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DOI: 10.1007/s11156-005-6333-2

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