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The hidden martingale restriction in Gram‐Charlier option prices

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  • Charles Corrado

Abstract

A hidden martingale restriction is developed for option pricing models based on Gram–Charlier expansions of the normal density function. The restriction is hidden behind a reduction in parameter space for the Gram–Charlier expansion coefficients. The resulting restriction is invisible in the option price. © 2007 Wiley Periodicals, Inc. Jrl Fut Mark 27: 517–534, 2007

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  • Charles Corrado, 2007. "The hidden martingale restriction in Gram‐Charlier option prices," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 27(6), pages 517-534, June.
    • Handle: RePEc:wly:jfutmk:v:27:y:2007:i:6:p:517-534
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    Cited by:

    1. Chateau, Jean-Pierre D., 2011. "Contribution à la réglementation de Bâle-3 : de la consistance interne du continuum du crédit commercial en marquant à la « valeur de modèle » le risque de crédit des engagements de crédit," L'Actualité Economique, Société Canadienne de Science Economique, vol. 87(4), pages 445-479, décembre.
    2. Monica Billio & Bertrand Maillet & Loriana Pelizzon, 2022. "A meta-measure of performance related to both investors and investments characteristics," Annals of Operations Research, Springer, vol. 313(2), pages 1405-1447, June.
    3. Ciprian Necula & Gabriel Drimus & Walter Farkas, 2019. "A general closed form option pricing formula," Review of Derivatives Research, Springer, vol. 22(1), pages 1-40, April.
    4. repec:oup:rapstu:v:7:y:2017:i:1:p:2-42. is not listed on IDEAS
    5. Lin, Shin-Hung & Huang, Hung-Hsi & Li, Sheng-Han, 2015. "Option pricing under truncated Gram–Charlier expansion," The North American Journal of Economics and Finance, Elsevier, vol. 32(C), pages 77-97.
    6. Ching-Ping Wang & Hung-Hsi Huang & Chien-Chia Hung, 2011. "Implied Index And Option Pricing Errors: Evidence From The Taiwan Option Market," The International Journal of Business and Finance Research, The Institute for Business and Finance Research, vol. 5(2), pages 115-125.
    7. Steven L. Heston & Alberto G. Rossi, 2017. "A Spanning Series Approach to Options," The Review of Asset Pricing Studies, Society for Financial Studies, vol. 7(1), pages 2-42.
    8. Jarno Talponen, 2018. "Matching distributions: Recovery of implied physical densities from option prices," Papers 1803.03996, arXiv.org.
    9. Sofiane Aboura & Didier Maillard, 2016. "Option Pricing Under Skewness and Kurtosis Using a Cornish–Fisher Expansion," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 36(12), pages 1194-1209, December.
    10. Fleming, Euan & Villano, Renato & Williamson, Brendon, 2013. "Structuring Exotic Options Contracts on Water to Improve the Efficiency of Resource Allocation in the Australian Water Market," Papers 234295, University of Melbourne, Melbourne School of Land and Environment.

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