Please use this identifier to cite or link to this item:
Title: Generalized parameter functions for option pricing
Authors: Andreou, Panayiotis 
Charalambous, Chris 
Martzoukos, Spiros H. 
Major Field of Science: Social Sciences
Field Category: Economics and Business
Keywords: Semi-parametric approach;Delta-hedging;Deterministic volatility functions;Implied volatilities;Option pricing
Issue Date: Mar-2010
Source: Journal of Banking and Finance, 2010, vol. 34, no. 3, pp. 633-646
Volume: 34
Issue: 3
Start page: 633
End page: 646
Journal: Journal of Banking & Finance 
Abstract: 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 used in the parametric option pricing models. Besides volatility, skewness and kurtosis of the asset return distribution can also be enhanced. Empirical results, using closing prices of the S&P 500 index call options (in one day ahead out-of-sample pricing tests), strongly support our method that compares favorably with a model that admits stochastic volatility and random jumps. Moreover, it is found to be superior in various robustness tests. Our semi-parametric approach is an effective remedy to the curse of dimensionality presented in nonparametric estimation and its main advantage is that it delivers theoretically consistent option prices and hedging parameters. The economic significance of the approach is tested in terms of hedging, where the evaluation and estimation loss functions are aligned.
ISSN: 0378-4266
DOI: 10.1016/j.jbankfin.2009.08.027
Rights: © Elsevier
Type: Article
Affiliation : Durham University 
University of Cyprus 
Cyprus University of Technology 
Appears in Collections:Άρθρα/Articles

CORE Recommender
Show full item record

Citations 20

checked on Nov 26, 2020


Last Week
Last month
checked on Nov 27, 2020

Page view(s) 20

Last Week
Last month
checked on Dec 3, 2020

Google ScholarTM



Items in KTISIS are protected by copyright, with all rights reserved, unless otherwise indicated.