Niveau: Supérieur, Doctorat, Bac+8
The Quality of Option Prices Forecasts: A Dynamic Approach? Gunther Capelle-Blancardy Emmanuel Jurczenkoz Bertrand Mailletx April 2000 Preliminary draft - Not to be quoted Abstract Many empirical studies pointed out that the Black-Scholes (1973) model leads to a wrong valuation of deep in-the-money and deep out- the-money options. These biases are usually attributed to the hypothesis of log-normality of the underlying asset return density. In order to remove these biases, Jarrow and Rudd (1982) propose to use an Edgeworth ex- pansion for the state price density. This approach takes into account the skewness and the kurtosis characterizing the return densities. Using high frequency data from the Bourse de Paris S.A. database, we examine the explicative and predictive power of the Jarrow and Rudd (1982) model. We …nd that this model improves the pricing of CAC 40 Index option (PXL). We wonder, in a last section, if the comparison between mod- els lead to the same conclusion when considering a dynamic framework. For this purpose, we determine a way of modelizing conditional moments whatever they are implicit or not. Keywords: Option Pricing Models, Edgeworth Expansion, Volatility Forecast. J.E.L. Classi…cation: G.10, G.12, G.13. ?We thank Bernard Bensaïd, Rama Cont, Jean-Paul Laurent, Thierry Michel and Christophe Villa for their comments on earlier drafts of this paper.
- distribution function
- comparison between
- asset return
- return densities
- options when
- density function
- volatility forecast
- option pricing
- model leads
- underlying asset