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Skewness premium with Lévy processes

José Fajardo () and Ernesto Mordecki

Quantitative Finance, 2014, vol. 14, issue 9, 1619-1626

Abstract: We study the skewness premium (SK) introduced by Bates [ J. Finance , 1991, 46 (3), 1009-1044] in a general context using Lévy processes. Under a symmetry condition, Fajardo and Mordecki [ Quant. Finance , 2006, 6 (3), 219-227] obtained that SK is given by Bates' x % rule. In this paper, we study SK in the absence of that symmetry condition. More exactly, we derive sufficient conditions for the excess of SK to be positive or negative, in terms of the characteristic triplet of the Lévy process under a risk-neutral measure.

Date: 2014
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Working Paper: Skewness Premium with Lévy Processes (2009) Downloads
Working Paper: Skewness Premium with Lévy Processes (2006) Downloads
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