Implied Volatility Skews and Stock Index Skewness and Kurtosis Implied by S&P 500 Index Option Prices

@inproceedings{Corrado1997ImpliedVS,
  title={Implied Volatility Skews and Stock Index Skewness and Kurtosis Implied by S\&P 500 Index Option Prices},
  author={Charles J. Corrado and Tie Su},
  year={1997}
}
The Black-Scholes (1973) option pricing model is used to value a wide range of option contracts. However, the model often inconsistently prices deep in-themoney and deep out-of-the-money options. Options’ professionals refer to this phenomenon as a volatility ‘skew’ or ‘smile.’ In this paper, we apply an extension of the Black-Scholes model developed by Jarrow and Rudd (1982) to an investigation of S&P 500 index option prices. We find that non-normal skewness and kurtosis in option-implied… Expand
Parametric pricing of higher order moments in S&P500 options
A general parametric framework is developed for pricing S&P500 options. Skewness and leptokurtosis in stock returns as well as time-varying volatility are priced. The parametric pricing model nestsExpand
The Performance of Skewness and Kurtosis Adjusted Option Pricing Model in Emerging Markets: A case of Turkish Derivatives Market
In this study, the option pricing performance of the adjusted Black-Scholes model proposed by Corrado and Su (1996) and corrected by Brown and Robinson (2002), is investigated and compared withExpand
The implied volatility smirk
This paper provides an industry standard on how to quantify the shape of the implied volatility smirk in the equity index options market. Our local expansion method uses a second-order polynomial toExpand
Generalized parameter functions for option pricing.
We extend the benchmark nonlinear deterministic volatility regression functions of Dumas et al. (1998) to provide a semi-parametric method where an enhancement of the implied parameter values is usedExpand
EVIDENCE ON DELTA HEDGING AND IMPLIED VOLATILITIES FOR THE BLACK‐SCHOLES, GAMMA, AND WEIBULL OPTION PRICING MODELS
Modifying the distributional assumptions of the Black-Scholes model is one way to accommodate the skewness of underlying asset returns. Simple models based on the compensated gamma and WeibullExpand
Effectiveness of the Skewness and Kurtosis Adjusted Black-Scholes Model in Pricing Nifty Call Options
This paper tests the predictive accuracy of the Black-Scholes (BS) model in pricing the Nifty index option contracts and examines whether the skewness and kurtosis adjusted BS model of Corrado and SuExpand
The Economic Significance of Conditional Skewness in Index Option Markets
This study examines whether conditional skewness forecasts of the underlying asset returns can be used to trade profitably in the index options market. The results indicate that a more generalExpand
Option Pricing Under Conditions of Systematic Asymmetry and Kurtosis
Abstract In this paper an option pricing model is derived for margined futmes options that specifically allows for asymmetry and kurtosis in the underlying returns distribution. The Asay model isExpand
A non-Gaussian option pricing model with skew
Closed form option pricing formulae explaining skew and smile are obtained within a parsimonious non-Gaussian framework. We extend the non-Gaussian option pricing model of L. Borland (QuantitativeExpand
A non-Gaussian option pricing model with skew
Closed form option pricing formulae explaining skew and smile are obtained within a parsimonious non-Gaussian framework. We extend the non-Gaussian option pricing model of L. Borland (QuantitativeExpand
...
1
2
3
4
5
...

References

SHOWING 1-10 OF 11 REFERENCES
Valuation of American call options on dividend-paying stocks: Empirical tests
Abstract This paper examines the pricing performance of the valuation equation for American call options on stocks with known dividends and compares it with two suggested approximation methods. TheExpand
The valuation of American call options and the expected ex-dividend stock price decline
Abstract This study focuses on the ex-dividend stock price decline implicit within the valuation of American call options on dividend-paying stocks. The Roll (1977) American call option pricingExpand
Options, futures, and other derivative securities
1. Introduction. 2. Futures Markets. 3. Forward and Futures Prices. 4. Interest Rate Futures. 5. Swaps. 6. Options Markets. 7. Properties of Stock Option Prices. 8. Trading Strategies InvolvingExpand
The Pricing of Options and Corporate Liabilities
If options are correctly priced in the market, it should not be possible to make sure profits by creating portfolios of long and short positions in options and their underlying stocks. Using thisExpand
APPROXIMATE OPTION VALUATION FOR ARBITRARY STOCHASTIC PROCESSES
Abstract We show how a given probability distribution can be approximated by an arbitrary distribution in terms of a series expansion involving second and higher moments. This theoretical developmentExpand
Implied Binomial Trees
This article develops a new method for inferring risk-neutral probabilities (or state-contingent prices) from the simultaneously observed prices of European options. These probabilities are then usedExpand
Option Volatility and Pricing
  • Option Volatility and Pricing
  • 1994
Option Volatility and Pricing, Chicago: Probus Publishing
  • Management Science,
  • 1994
The Valuation of American Call Options and the Expected Ex-Dividend Stock Price Decline,
  • Journal of Financial Economics,
  • 1986
...
1
2
...