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A Non-Parametric Option Pricing Model: Theory and Empirical Evidence

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  • Ren-Raw Chen

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  • Oded Palmon

    ()

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    Abstract

    In this paper, we propose an empirically-based, non-parametric option pricing model to evaluate S&P 500 index options. Given the fact that the model is derived under the real measure, an equilibrium asset pricing model, instead of no-arbitrage, must be assumed. Using the histogram of past S&P 500 index returns, we find that most of the volatility smile documented in the literature disappears. Copyright Springer Science + Business Media, Inc. 2005

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    File URL: http://hdl.handle.net/10.1007/s11156-005-6333-2
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    Bibliographic Info

    Article provided by Springer in its journal Review of Quantitative Finance and Accounting.

    Volume (Year): 24 (2005)
    Issue (Month): 2 (January)
    Pages: 115-134

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    Handle: RePEc:kap:rqfnac:v:24:y:2005:i:2:p:115-134

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    Web page: http://springerlink.metapress.com/link.asp?id=102990

    Related research

    Keywords: options; implied volatility; volatility smile; nonparametric model;

    References

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