Implied Volatility Skews and Stock Index Skewness and Kurtosis Implied by S&p 500 Index Option Prices
نویسندگان
چکیده
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 distributions of index returns contribute significantly to the phenomenon of volatility skews. Correspondence to Tie Su, Department of Finance, University of Miami, Coral Gables, FL 33124-6552, Phone (305) 284-1885 Fax (305) 284-4800 Email [email protected].
منابع مشابه
Implied volatility skews and stock return skewness and kurtosis implied by stock option prices
The Black–Scholes* option pricing model is commonly applied to value a wide range of option contracts. However, the model often inconsistently prices deep in-the-money and deep out-of-the-money options. Options professionals refer to this well-known phenomenon as a volatility ‘skew’ or ‘smile’. In this paper, we examine an extension of the Black–Scholes model developed by Corrado and Su‡ that s...
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