Option Pricing and Distribution Characteristics
David Mauler () and
James McDonald ()
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David Mauler: Department of Economics, Brigham Young University
No 2012-08, BYU Macroeconomics and Computational Laboratory Working Paper Series from Brigham Young University, Department of Economics, BYU Macroeconomics and Computational Laboratory
A number of flexible distributions (generalized beta of the second kind, inverse hyperbolic sine, g-and-h, Weibull, Burr-3, Burr-12, generalized 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 GB2 appearing to be the most attractive choice.
Keywords: Option Pricing; Implied Distributions; Generalized Distributions (search for similar items in EconPapers)
JEL-codes: C50 (search for similar items in EconPapers)
Pages: 19 pages
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Forthcoming in Computational Economics
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Journal Article: Option Pricing and Distribution Characteristics (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:byu:byumcl:201208
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