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Author : Emmanuel Jurczenko
Publisher :
ISBN 13 :
Total Pages : 32 pages
Book Rating : 4.:/5 (248 download)
Download or read book Skewness and Kurtosis Implied by Option Prices written by Emmanuel Jurczenko and published by . This book was released on 2002 with total page 32 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Author : Gregorio Serna Calvo
Publisher :
ISBN 13 :
Total Pages : 50 pages
Book Rating : 4.:/5 (928 download)
Download or read book On the information content of volatility, skewness and kurtosis implied in option prices written by Gregorio Serna Calvo and published by . This book was released on 2001 with total page 50 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Author : Dean Diavatopoulos
Publisher :
ISBN 13 :
Total Pages : 36 pages
Book Rating : 4.:/5 (129 download)
Download or read book The Information Content of Implied Skewness and Kurtosis Changes Prior to Earnings Announcements for Stock and Option Returns written by Dean Diavatopoulos and published by . This book was released on 2016 with total page 36 pages. Available in PDF, EPUB and Kindle. Book excerpt: We explore whether changes in stock return skewness and kurtosis, as implied in option prices preceding earnings announcements, provide information about subsequent stock and option returns through the announcement. We demonstrate that the change in skewness and kurtosis can be related to changing jump risk premiums, where jump risk can be associated with the uncertainty around the direction and size of the stock price response to the earnings announcement. As such, implied skewness (kurtosis) should capture the direction (magnitude) of a stock jump if option prices change as a result of changing jump risk size and intensity. Examining changes in implied skewness and kurtosis preceding over 74,000 earnings announcements for over 4700 firms, we find that both moments have strong predictive power for future stock returns, even after controlling for implied volatility. Additionally, changes in both moments predict call returns, while put return predictability is primarily linked to skewness. Thus, prior to earnings announcements, option prices contain information about future security returns.
Author : Rritu Saurabha
Publisher :
ISBN 13 :
Total Pages : 0 pages
Book Rating : 4.:/5 (137 download)
Download or read book Empirical Study of the Effect of Including Skewness and Kurtosis in Black Scholes Option Pricing Formula on S&P CNX Nifty Index Options written by Rritu Saurabha and published by . This book was released on 2008 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: The most popular model for pricing options, both in financial literature as well as in practice has been the Black-Scholes model. In spite of its wide spread use the model appears to be deficient in pricing deep in the money and deep out of the money options using statistical estimates of volatility. This limitation has been taken into account by practitioners using the concept of implied volatility. The value of implied volatility for different strike prices should theoretically be identical, but is usually seen in the market to vary. In most markets across the world it has been observed that the implied volatilities of different strike prices form a pattern of either a 'smile' or 'skew'. Theoretically, since volatility is a property of the underlying asset it should be predicted by the pricing formula to be identical for all derivatives based on that same asset. Hull [1993] and Nattenburg [1994] have attributed the volatility smile to the non normal Skewness and Kurtosis of stock returns. Many improvements to the Black-Scholes formula have been suggested in academic literature for addressing the issue of volatility smile. This paper studies the effect of using a variation of the BS model (suggested by Corrado & Sue [1996] incorporating non-normal skewness and kurtosis) to price call options on S&P CNX Nifty. The results strongly suggest that the incorporation of skewness and kurtosis into the option pricing formula yields values much closer to market prices. Based on this result and the fact that this approach does not add any further complexities to the option pricing formula, we suggest that this modified approach should be considered as a better alternative.
Author : Patrick Navatte
Publisher :
ISBN 13 :
Total Pages : pages
Book Rating : 4.:/5 (129 download)
Download or read book The Information Content of Implied Volatility, Skewness and Kurtosis written by Patrick Navatte and published by . This book was released on 2000 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: The implied standard deviation is widely believed to be the best available forecast of the volatility of the returns over the remaining contract life (Jorion 1995). In this paper, we generalize this result to the higher moments of the distribution (Skewness and Kurtosis) based on a Gram-Charlier series expansion of the normal distribution (Corrado and Su 1996) using long term CAC 40 option prices contract, named PXL. First, we find that implied first moments contain a substantial amount of information for realized future moments of CAC 40 returns although this amount is decreasing with respect to the moment's order. Second, we find that different shapes of the volatility smile are consistent with different distributions of the underlying returns. Based on these results, we also observe that including other implied moments significantly improve the out-of-sample pricing performance of the Black-Scholes (1973) model.
Author : Gregorio Serna Calvo
Publisher :
ISBN 13 :
Total Pages : 43 pages
Book Rating : 4.:/5 (87 download)
Download or read book On the Information Content of Volatility, Skewness and Kurtosis Implied in Options Prices written by Gregorio Serna Calvo and published by . This book was released on 2001 with total page 43 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Author : Jian Chen
Publisher : Springer
ISBN 13 : 9811074283
Total Pages : 163 pages
Book Rating : 4.8/5 (11 download)
Download or read book General Equilibrium Option Pricing Method: Theoretical and Empirical Study written by Jian Chen and published by Springer. This book was released on 2018-04-10 with total page 163 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book mainly addresses the general equilibrium asset pricing method in two aspects: option pricing and variance risk premium. First, volatility smile and smirk is the famous puzzle in option pricing. Different from no arbitrage method, this book applies the general equilibrium approach in explaining the puzzle. In the presence of jump, investors impose more weights on the jump risk than the volatility risk, and as a result, investors require more jump risk premium which generates a pronounced volatility smirk. Second, based on the general equilibrium framework, this book proposes variance risk premium and empirically tests its predictive power for international stock market returns.
Author : Fabrice D. Rouah
Publisher : John Wiley & Sons
ISBN 13 : 1118429206
Total Pages : 456 pages
Book Rating : 4.1/5 (184 download)
Download or read book Option Pricing Models and Volatility Using Excel-VBA written by Fabrice D. Rouah and published by John Wiley & Sons. This book was released on 2012-06-15 with total page 456 pages. Available in PDF, EPUB and Kindle. Book excerpt: This comprehensive guide offers traders, quants, and students the tools and techniques for using advanced models for pricing options. The accompanying website includes data files, such as options prices, stock prices, or index prices, as well as all of the codes needed to use the option and volatility models described in the book. Praise for Option Pricing Models & Volatility Using Excel-VBA "Excel is already a great pedagogical tool for teaching option valuation and risk management. But the VBA routines in this book elevate Excel to an industrial-strength financial engineering toolbox. I have no doubt that it will become hugely successful as a reference for option traders and risk managers." —Peter Christoffersen, Associate Professor of Finance, Desautels Faculty of Management, McGill University "This book is filled with methodology and techniques on how to implement option pricing and volatility models in VBA. The book takes an in-depth look into how to implement the Heston and Heston and Nandi models and includes an entire chapter on parameter estimation, but this is just the tip of the iceberg. Everyone interested in derivatives should have this book in their personal library." —Espen Gaarder Haug, option trader, philosopher, and author of Derivatives Models on Models "I am impressed. This is an important book because it is the first book to cover the modern generation of option models, including stochastic volatility and GARCH." —Steven L. Heston, Assistant Professor of Finance, R.H. Smith School of Business, University of Maryland
Author : Steven A. Weinberg
Publisher :
ISBN 13 :
Total Pages : 52 pages
Book Rating : 4.:/5 (318 download)
Download or read book Interpreting the Volatility Smile written by Steven A. Weinberg and published by . This book was released on 2001 with total page 52 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Author : Sofiane Aboura
Publisher :
ISBN 13 :
Total Pages : 18 pages
Book Rating : 4.:/5 (13 download)
Download or read book Option Pricing Under Skewness and Kurtosis Using a Cornish Fisher Expansion written by Sofiane Aboura and published by . This book was released on 2015 with total page 18 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper revisits the pricing of options, in a context of financial stress, when the underlying asset's returns displays skewness and excess kurtosis. For that purpose, we use a Cornish-Fisher transformation for valuing option contracts with an exact formula allowing for heavy-tails.An application to the FTSE 100 stock index option contracts during October 2008 provides evidence about the capability of the Cornish-Fisher model to improve calibration and pricing performance during a volatile period.
Author : Daniel Giamouridis
Publisher :
ISBN 13 :
Total Pages : pages
Book Rating : 4.:/5 (129 download)
Download or read book Asymptotic Distribution Expansions in Option Pricing written by Daniel Giamouridis and published by . This book was released on 2008 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This article extends an option pricing model and studies the properties of implied probability distribution functions (PDFs) recovered from American interest rate futures options. The model relaxes the restricting assumption of lognormally distributed returns accommodating a wide variety of implied PDFs shapes. Non-normal skewness and kurtosis are found to contribute significantly to estimating more precise implied densities. The model achieves good in-sample accuracy, similar to that achieved by alternative approaches. The recovered implied PDFs are, finally, found to be closer to a median PDF estimated using a number of alternative techniques.
Author : Jeffrey Owen Katz
Publisher : McGraw Hill Professional
ISBN 13 : 0071454705
Total Pages : 449 pages
Book Rating : 4.0/5 (714 download)
Download or read book Advanced Option Pricing Models written by Jeffrey Owen Katz and published by McGraw Hill Professional. This book was released on 2005-03-21 with total page 449 pages. Available in PDF, EPUB and Kindle. Book excerpt: Advanced Option Pricing Models details specific conditions under which current option pricing models fail to provide accurate price estimates and then shows option traders how to construct improved models for better pricing in a wider range of market conditions. Model-building steps cover options pricing under conditional or marginal distributions, using polynomial approximations and “curve fitting,” and compensating for mean reversion. The authors also develop effective prototype models that can be put to immediate use, with real-time examples of the models in action.
Author : Emmanuel Jurczenko
Publisher : John Wiley & Sons
ISBN 13 : 0470057998
Total Pages : 258 pages
Book Rating : 4.4/5 (7 download)
Download or read book Multi-moment Asset Allocation and Pricing Models written by Emmanuel Jurczenko and published by John Wiley & Sons. This book was released on 2006-10-02 with total page 258 pages. Available in PDF, EPUB and Kindle. Book excerpt: While mainstream financial theories and applications assume that asset returns are normally distributed and individual preferences are quadratic, the overwhelming empirical evidence shows otherwise. Indeed, most of the asset returns exhibit “fat-tails” distributions and investors exhibit asymmetric preferences. These empirical findings lead to the development of a new area of research dedicated to the introduction of higher order moments in portfolio theory and asset pricing models. Multi-moment asset pricing is a revolutionary new way of modeling time series in finance which allows various degrees of long-term memory to be generated. It allows risk and prices of risk to vary through time enabling the accurate valuation of long-lived assets. This book presents the state-of-the art in multi-moment asset allocation and pricing models and provides many new developments in a single volume, collecting in a unified framework theoretical results and applications previously scattered throughout the financial literature. The topics covered in this comprehensive volume include: four-moment individual risk preferences, mathematics of the multi-moment efficient frontier, coherent asymmetric risks measures, hedge funds asset allocation under higher moments, time-varying specifications of (co)moments and multi-moment asset pricing models with homogeneous and heterogeneous agents. Written by leading academics, Multi-moment Asset Allocation and Pricing Models offers a unique opportunity to explore the latest findings in this new field of research.
Author : Bruno Feunou
Publisher :
ISBN 13 :
Total Pages : pages
Book Rating : 4.:/5 (416 download)
Download or read book The Equity Premium and the Volatility Spread written by Bruno Feunou and published by . This book was released on 2009 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Author : Yisong S. Tian
Publisher :
ISBN 13 :
Total Pages : pages
Book Rating : 4.:/5 (13 download)
Download or read book Extracting Risk-Neutral Density and Its Moments from American Option Prices written by Yisong S. Tian and published by . This book was released on 2019 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: There has been a surge in the use of option-implied moments (e.g., volatility, skewness and kurtosis) in various empirical applications such as volatility forecasting, variance risk premium, empirical asset pricing, and portfolio selection. One potential obstacle in such applications is the requirement of European option prices in the estimation of these moments. In this paper, we develop a simple, accurate method for extracting risk-neutral density and its moments from American option prices. A key advantage of our approach is that a single implied binomial tree is constructed to fit all American option prices, utilizing the full information set in the entire options market. Since American options are more commonly traded than European options, our methodology expands the scope of research on option-implied density and moments to a much wider class of underlying assets (e.g., equity and futures options).
Author : Jonathan Batten
Publisher : Emerald Group Publishing
ISBN 13 : 1780526164
Total Pages : 446 pages
Book Rating : 4.7/5 (85 download)
Download or read book Derivatives Pricing and Modeling written by Jonathan Batten and published by Emerald Group Publishing. This book was released on 2012-07-02 with total page 446 pages. Available in PDF, EPUB and Kindle. Book excerpt: Highlights research in derivatives modelling and markets in a post-crisis world across a number of dimensions or themes. This book addresses the following main areas: derivatives models and pricing, model application and performance backtesting, and new products and market features.
Author : Emanuel Derman
Publisher : John Wiley & Sons
ISBN 13 : 1118959167
Total Pages : 528 pages
Book Rating : 4.1/5 (189 download)
Download or read book The Volatility Smile written by Emanuel Derman and published by John Wiley & Sons. This book was released on 2016-09-06 with total page 528 pages. Available in PDF, EPUB and Kindle. Book excerpt: The Volatility Smile The Black-Scholes-Merton option model was the greatest innovation of 20th century finance, and remains the most widely applied theory in all of finance. Despite this success, the model is fundamentally at odds with the observed behavior of option markets: a graph of implied volatilities against strike will typically display a curve or skew, which practitioners refer to as the smile, and which the model cannot explain. Option valuation is not a solved problem, and the past forty years have witnessed an abundance of new models that try to reconcile theory with markets. The Volatility Smile presents a unified treatment of the Black-Scholes-Merton model and the more advanced models that have replaced it. It is also a book about the principles of financial valuation and how to apply them. Celebrated author and quant Emanuel Derman and Michael B. Miller explain not just the mathematics but the ideas behind the models. By examining the foundations, the implementation, and the pros and cons of various models, and by carefully exploring their derivations and their assumptions, readers will learn not only how to handle the volatility smile but how to evaluate and build their own financial models. Topics covered include: The principles of valuation Static and dynamic replication The Black-Scholes-Merton model Hedging strategies Transaction costs The behavior of the volatility smile Implied distributions Local volatility models Stochastic volatility models Jump-diffusion models The first half of the book, Chapters 1 through 13, can serve as a standalone textbook for a course on option valuation and the Black-Scholes-Merton model, presenting the principles of financial modeling, several derivations of the model, and a detailed discussion of how it is used in practice. The second half focuses on the behavior of the volatility smile, and, in conjunction with the first half, can be used for as the basis for a more advanced course.
