Option Implied Moments: An Application to Nikkei 225 Futures Options

Kian-Ping Ang, Shafiqur Rahman () and Kok-Hui Tan
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Kian-Ping Ang: United Overseas Bank Group, 80 Raffles Place, Singapore 048624, Singapore
Shafiqur Rahman: School of Business Administration, Portland State University, P. O. Box 751 Portland, OR 97201-0751, USA
Kok-Hui Tan: Division of Banking and Finance, Nanyang Business School, Nanyang Technological University, Nanyang Avenue, Singapore 639798, Singapore

Review of Pacific Basin Financial Markets and Policies (RPBFMP), 2002, vol. 05, issue 03, 301-320

Abstract: This paper proposes an integrated process to recover the moments of the risk-neutral distribution using a Gram-Charlier expansion series and Rubinstein's implied binomial tree approach. The advantage of using the implied tree approach is that it accounts for the possibility of early exercise of American options. We apply the method to American-style options on Nikkei 225 futures. We then demonstrate how to use the implied moments for trading options.

Keywords: Implied Volatility; Binomial Tree; Futures Options (search for similar items in EconPapers)
JEL-codes: G1 G2 G3 (search for similar items in EconPapers)
Date: 2002
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Citations: View citations in EconPapers (2)

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DOI: 10.1142/S0219091502000821

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