Parametric properties of semi-nonparametric distributions, with applications to option valuation

Javier Mencia, Angel Leon and Enrique Sentana

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: We derive the statistical properties of the SNP densities of Gallant and Nychka (1987). We show that these densities, which are always positive, are more flexible than truncated Gram-Charlier expansions with positivity restrictions. We use the SNP densities for financial derivatives valuation. We relate real and risk-neutral measures, obtain closed-form prices for European options, and analyse the semiparametric properties of our pricing model. In an Nempirical application to S&P500 index options, we compare our model to the standard and Practitioner’s Black-Scholes formulas, truncated expansions, and the Generalised Beta and Variance Gamma models.

Keywords: Kurtosis; density expansions; Gram-Charlier; skewness; S&P index options (search for similar items in EconPapers)
JEL-codes: C16 G13 (search for similar items in EconPapers)
Pages: 0 pages
Date: 2007-10-01
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http://eprints.lse.ac.uk/24496/ Open access version. (application/pdf)

Related works:
Journal Article: Parametric Properties of Semi-Nonparametric Distributions, with Applications to Option Valuation (2009)
Working Paper: Parametric properties of semi-nonparametric distributions, with applications to option valuation (2007)
Working Paper: Parametric Properties of Semi-Nonparametric Distributions, with Applications to Option Valuation (2005)
Working Paper: Parametric Properties of Semi-Nonparametric Distributions, With Applications to Option Valuation (2005)
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