Options on portfolios with higher-order moments
Rishabh Bhandari and
Sanjiv Das ()
Finance Research Letters, 2009, vol. 6, issue 3, 122-129
We develop a simple calibration approach to generate return distributions for multivariate asset distributions and use this technique to price options on portfolios given the first four co-moments of the joint distribution of returns. The technique is fast and captures the impact of covariance, and the co-skewness and co-kurtosis tensors on the value of these options. Given the technique works for a portfolio, the same is also applicable to options on individual securities as a special simpler case.
Keywords: Co-moments; Tensors; Options; Portfolios (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:6:y:2009:i:3:p:122-129
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