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Option Implied Trees and Implied Moments

Silvia Muzzioli () and Alessio Ruggieri

Department of Economics (DEMB) from University of Modena and Reggio Emilia, Department of Economics "Marco Biagi"

Abstract: Implied trees are simple non-parametric discretizations of one- or two-dimension diffusions, aimed at introducing non-constant volatility in an option pricing model. The aim of the paper is twofold. First we investigate the ability of different option implied trees in pricing European options. Second, we compare the implied moments obtained with the use of option implied trees with the risk–neutral moments obtained with the use of Bakshi et al. (2003) formula and with realised physical moments. The comparison is pursued in the Italian market by analysing a data set which covers the years 2005-2009 and span both a relatively tranquil and a turmoil period.

Keywords: option implied trees; risk neutral moments; financial turmoil. (search for similar items in EconPapers)
JEL-codes: G13 G14 (search for similar items in EconPapers)
Pages: pages 37
Date: 2013-06
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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