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Investigation of non-Gaussian effects in the Brazilian option market

Author

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  • Sosa-Correa, William O.
  • Ramos, Antônio M.T.
  • Vasconcelos, Giovani L.

Abstract

An empirical study of the Brazilian option market is presented in light of three option pricing models, namely the Black–Scholes model, the exponential model, and a model based on a power law distribution, the so-called q-Gaussian distribution or Tsallis distribution. It is found that the q-Gaussian model performs better than the Black–Scholes model in about one third of the option chains analyzed. But among these cases, the exponential model performs better than the q-Gaussian model in 75% of the time. The superiority of the exponential model over the q-Gaussian model is particularly impressive for options close to the expiration date, where its success rate rises above ninety percent.

Suggested Citation

  • Sosa-Correa, William O. & Ramos, Antônio M.T. & Vasconcelos, Giovani L., 2018. "Investigation of non-Gaussian effects in the Brazilian option market," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 496(C), pages 525-539.
    • Handle: RePEc:eee:phsmap:v:496:y:2018:i:c:p:525-539
    DOI: 10.1016/j.physa.2017.12.115
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