The Finite Moment Log Stable Process and Option Pricing

• Peter Carr

• Liuren Wu

抄録

We document a surprising pattern in S&P 500 option prices. When implied volatilities are graphed against a standard measure of moneyness, the implied volatility smirk does not flatten out as maturity increases up to the observable horizon of two years. This behavior contrasts sharply with the implications of many pricing models and with the asymptotic behavior implied by the central limit theorem (CLT). We develop a parsimonious model which deliberately violates the CLT assumptions and thus captures the observed behavior of the volatility smirk over the maturity horizon. Calibration exercises demonstrate its superior performance against several widely used alternatives.

収録刊行物

• The Journal of Finance

  The Journal of Finance 58 (2), 753-777, 2003-03-21

  Wiley

キーワード

• Economics and Econometrics
• Finance
• Accounting

詳細情報

• CRID: 1363107368590171520
• NII論文ID: 30005062352
• DOI: 10.1111/1540-6261.00544
• ISSN: 15406261
• ISSN: 00221082
• Web Site: https://api.wiley.com/onlinelibrary/tdm/v1/articles/10.1111%2F1540-6261.00544
• Web Site: https://onlinelibrary.wiley.com/doi/pdf/10.1111/1540-6261.00544
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  • CiNii Articles