The Pietra term structures of financial assets

Iddo Eliazar

Physica A: Statistical Mechanics and its Applications, 2011, vol. 390, issue 4, 699-706

Abstract: This paper explores an elemental connection between call options–the most commonly tradable financial derivatives, implied volatility term structures–critical “market information” emanating from call-option prices, and the Pietra index–a quantitative economic measure of societal egalitarianism. Our study: (i) unveils an intrinsic “Pietra structure” of call-option prices; (ii) introduces the notion of the “Pietra term structures” of financial assets; (iii) describes the probabilistic meaning of the Pietra term structures; (iv) establishes an explicit nonlinear one-to-one mapping between the Pietra term structures and the implied volatility term structures of financial assets. The results presented in this paper provide a deep insight into the econophysics of call options and implied volatility term structures.

Keywords: Call options; Risk-neutral option pricing; Risk-neutral probability; Merton–Black–Scholes option pricing formula; Implied volatility term structure; Lorenz curve; Gini index; Pietra index; Pietra term structure (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:390:y:2011:i:4:p:699-706

DOI: 10.1016/j.physa.2010.10.021

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