The implicit models of the option valuation
AbstractOf the alternative approaches to the Black-Scholes options valuation model, the implied models have had the largest development in last years. In this approach there are different alternatives: implied trees, deterministic volatility function models and implied volatility function models. All of them are based on the estimation of the risk-neutral probability distribution of underlying asset future prices, that is congruent with the options market prices. Accordingly, implied models are found to provide an exact fit of reported structure of options prices. However, the pricing performance of implied models valuing out-of-sample options is not adequate, and its usefulness as predictive tool is not satisfactory. In this article we analyze to which extent the implied approach improve the option valuation theory, from both theoretical and practical point of view.
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Bibliographic InfoArticle provided by Universidad del País Vasco - Instituto de Economía Aplicada a la Empresa (IEAE) in its journal Cuadernos de Gestión.
Volume (Year): 4 (2004)
Issue (Month): 2 ()
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Postal: Instituto de Economía Aplicada a la Empresa, Revista Cuadernos de Gestión, Facultad de CC. Económicas y Empresariales, Universidad del País Vasco, Avda. Lehendakari Aguirre 83, 48015 Bilbao, Spain
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