Martingalized historical approach for option pricing

Christophe Chorro (), Dominique Guegan () and Florian Ielpo ()
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Christophe Chorro: Centre d'Economie de la Sorbonne, https://centredeconomiesorbonne.cnrs.fr
Dominique Guegan: Centre d'Economie de la Sorbonne - Paris School of Economics, https://cv.archives-ouvertes.fr/dominique-guegan
Florian Ielpo: Centre d'Economie de la Sorbonne, https://centredeconomiesorbonne.cnrs.fr

Documents de travail du Centre d'Economie de la Sorbonne from Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne

Abstract: In a discrete time option pricing framework, we compare the empirical performance of two pricing methodologies, namely the affine stochastic discount factor and the empirical martingale correction methodologies. Using a CAC 40 options dataset, the differences are found to be small: the higher order moment correction involved in the SDF approach may not be that essential to reduce option pricing errors

Keywords: Generalized hyperbolic distribution; option pricing; incomplete market; CAC 40; stochastic discount factor; martingale correction (search for similar items in EconPapers)
JEL-codes: C5 G1 (search for similar items in EconPapers)
Pages: 7 pages
Date: 2009-04
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Citations: View citations in EconPapers (9)

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Persistent link: https://EconPapers.repec.org/RePEc:mse:cesdoc:09021

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