Log Student’s t -distribution-based option sensitivities: Greeks for the Gosset formulae

Daniel T. Cassidy, Michael J. Hamp and Rachid Ouyed

Quantitative Finance, 2013, vol. 13, issue 8, 1289-1302

Abstract: European options can be priced when returns follow a log Student’s t -distribution, provided that the asset is capped in value or the distribution is truncated. We call pricing of options using a log Student’s t -distribution a Gosset approach, in honour of W.S. Gosset. In this paper, we compare the Greeks for Gosset and Black--Scholes formulae and we discuss implementation. The t -distribution requires a shape parameter to match the ‘fat tails’ of the observed log returns. For large , the Gosset and Black--Scholes formulae are equivalent. The Gosset formula removes the requirement that the volatility be known, and in this sense can be viewed as an extension of the Black--Scholes formula.

Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
http://hdl.handle.net/10.1080/14697688.2012.744087 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:taf:quantf:v:13:y:2013:i:8:p:1289-1302

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/RQUF20

DOI: 10.1080/14697688.2012.744087

Access Statistics for this article

Quantitative Finance is currently edited by Michael Dempster and Jim Gatheral

More articles in Quantitative Finance from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().