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Martingalized Historical approach for Option Pricing

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Author Info
Christophe Chorro () (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I)
Dominique Guegan () (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris)
Florian Ielpo () (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I)

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Abstract

In a discrete time option pricing framework, we compare the empirical performance of two pricing methodologies, namely the affine stochastic discount factor and the empirical martingale correction methodologies. Using a CAC 40 options dataset, the differences are found to be small : the higher order moment correction involved in the SDF approach may not be that essential to reduce option pricing errors.

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Paper provided by HAL in its series Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) with number halshs-00376756_v1.

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Date of creation: Apr 2009
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Handle: RePEc:hal:cesptp:halshs-00376756_v1

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Related research
Keywords: Generalized hyperbolic distribution; option pricing; incomplete market; CAC 40; Stochastic Discount Factor; martingale correction.;

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This page was last updated on 2009-12-1.

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