A non-parametric option pricing model: Theory and empirical evidence

Ren Raw Chen; Oded Palmon

doi:10.1007/s11156-005-6333-2

A non-parametric option pricing model: Theory and empirical evidence

Ren Raw Chen^*
, Oded Palmon

^*Corresponding author for this work

Rutgers - The State University of New Jersey, New Brunswick

Research output: Contribution to journal › Journal Article › peer-review

7 Scopus citations

Abstract

In this paper, we propose an empirically-based, non-parametric option pricing model to evaluate S&P 500 index options. Given the fact that the model is derived under the real measure, an equilibrium asset pricing model, instead of no-arbitrage, must be assumed. Using the histogram of past S&P 500 index returns, we find that most of the volatility smile documented in the literature disappears.

Original language	English
Pages (from-to)	115-134
Number of pages	20
Journal	Review of Quantitative Finance and Accounting
Volume	24
Issue number	2
DOIs	https://doi.org/10.1007/s11156-005-6333-2
State	Published - 03 2005
Externally published	Yes

Keywords

Implied volatility
Nonparametric model
Options
Volatility smile

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10.1007/s11156-005-6333-2

Cite this

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title = "A non-parametric option pricing model: Theory and empirical evidence",

abstract = "In this paper, we propose an empirically-based, non-parametric option pricing model to evaluate S\&P 500 index options. Given the fact that the model is derived under the real measure, an equilibrium asset pricing model, instead of no-arbitrage, must be assumed. Using the histogram of past S\&P 500 index returns, we find that most of the volatility smile documented in the literature disappears.",

keywords = "Implied volatility, Nonparametric model, Options, Volatility smile",

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AB - In this paper, we propose an empirically-based, non-parametric option pricing model to evaluate S&P 500 index options. Given the fact that the model is derived under the real measure, an equilibrium asset pricing model, instead of no-arbitrage, must be assumed. Using the histogram of past S&P 500 index returns, we find that most of the volatility smile documented in the literature disappears.

KW - Implied volatility

KW - Nonparametric model

KW - Options

KW - Volatility smile

UR - https://www.scopus.com/pages/publications/17744368931

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DO - 10.1007/s11156-005-6333-2

M3 - 文章

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JF - Review of Quantitative Finance and Accounting

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ER -

A non-parametric option pricing model: Theory and empirical evidence

Abstract

Keywords

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