Option Pricing and Distribution Characteristics
David Mauler () and
James McDonald ()
Computational Economics, 2015, vol. 45, issue 4, 579-595
A number of flexible distributions (generalized beta of the second kind, inverse hyperbolic sine (IHS), $$g$$ g -and- $$h$$ h , Weibull, Burr-3, Burr-12, generalized gamma, reciprocal gamma) are examined in the setting of option-pricing to explore potential improvements over the standard assumption of lognormal returns. Price formulas are presented specific to each assumed distributional form. The IHS option price formula has not previously been presented in the literature. An empirical application follows where implied risk-neutral density functions for each distribution are estimated from options on the S&P 500 Index. The distributions’ performance relative to one another is then evaluated with the more flexible distributions performing similarly and outperforming their special and limiting cases, including the Black-Scholes which is based on the lognormal. Copyright Springer Science+Business Media New York 2015
Keywords: Option pricing; Implied distributions; Generalized distributions (search for similar items in EconPapers)
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed
Downloads: (external link)
Access to full text is restricted to subscribers.
Working Paper: Option Pricing and Distribution Characteristics (2012)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:kap:compec:v:45:y:2015:i:4:p:579-595
Ordering information: This journal article can be ordered from
http://www.springer. ... ry/journal/10614/PS2
Access Statistics for this article
Computational Economics is currently edited by Hans Amman
More articles in Computational Economics from Springer, Society for Computational Economics Contact information at EDIRC.
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().