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Skewness Premium with Lévy Processes

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Author Info
José Fajardo (IBMEC Business School - Rio de Janeiro)
Ernesto Mordecki (Centro de Matemática, Facultad de Ciências, Universidad de la República, Uruguay)

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Abstract

We study the skewness premium (SK) introduced by Bates (1991) in a general context using Lévy Processes. We obtain sufficient and necessary conditions for Bate's x% rule to hold. Then, we derive sufficient conditions for SK to be positive, in terms of the characteristic triplet of the Lévy Process under the risk neutral measure.

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Publisher Info
Paper provided by Economics Research Group, IBMEC Business School - Rio de Janeiro in its series IBMEC RJ Economics Discussion Papers with number 2006-04.

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Date of creation: 24 Oct 2006
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Handle: RePEc:ibr:dpaper:2006-04

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Related research
Keywords: Skewness Premium; Lévy processes;

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Find related papers by JEL classification:
C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation and Testing
G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. JosÉ Fajardo & Ernesto Mordecki, 2006. "Symmetry and duality in Lévy markets," Quantitative Finance, Taylor and Francis Journals, vol. 6(3), pages 219-227, June. [Downloadable!] (restricted)
  2. Peter Carr & Katrina Ellis & Vishal Gupta, 1998. "Static Hedging of Exotic Options," Journal of Finance, American Finance Association, vol. 53(3), pages 1165-1190, 06. [Downloadable!] (restricted)
  3. Schroder, Mark, 1999. "Changes of Numeraire for Pricing Futures, Forwards, and Options," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 12(5), pages 1143-63.
  4. José Fajardo & Ernesto Mordecki, 2005. "Duality and Derivative Pricing with Time-Changed Lévy Processes," IBMEC RJ Economics Discussion Papers 2005-12, Economics Research Group, IBMEC Business School - Rio de Janeiro. [Downloadable!]
  5. Bergman, Yaacov Z & Grundy, Bruce D & Wiener, Zvi, 1996. " General Properties of Option Prices," Journal of Finance, American Finance Association, vol. 51(5), pages 1573-1610, December. [Downloadable!] (restricted)
  6. Eberlein, Ernst & Keller, Ulrich & Prause, Karsten, 1998. "New Insights into Smile, Mispricing, and Value at Risk: The Hyperbolic Model," Journal of Business, University of Chicago Press, vol. 71(3), pages 371-405, July. [Downloadable!] (restricted)
  7. Robert C. Merton, 1973. "Theory of Rational Option Pricing," Bell Journal of Economics, The RAND Corporation, vol. 4(1), pages 141-183, Spring. [Downloadable!] (restricted)
  8. Merton, Robert C., 1976. "Option pricing when underlying stock returns are discontinuous," Journal of Financial Economics, Elsevier, vol. 3(1-2), pages 125-144. [Downloadable!] (restricted)
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  9. Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-54, May-June. [Downloadable!] (restricted)
  10. Yaacov Z. Bergman & Bruce D. Grundy & Zvi Wiener, . "General Properties of Option Prices (Revision of 11-95) (Reprint 058)," Rodney L. White Center for Financial Research Working Papers 1-96, Wharton School Rodney L. White Center for Financial Research.
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  11. Carr, Peter & Wu, Liuren, 2004. "Time-changed Levy processes and option pricing," Journal of Financial Economics, Elsevier, vol. 71(1), pages 113-141, January. [Downloadable!] (restricted)
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  12. Ait-Sahalia, Yacine, 2004. "Disentangling diffusion from jumps," Journal of Financial Economics, Elsevier, vol. 74(3), pages 487-528, December. [Downloadable!] (restricted)
  13. José Fajardo & Aquiles Farias, 2002. "Generalized Hyperbolic Distributions and Brazilian Data," Working Papers Series 52, Central Bank of Brazil, Research Department. [Downloadable!]
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Ernst Eberlein & Antonis Papapantoleon & Albert Shiryaev, 2008. "On the duality principle in option pricing: semimartingale setting," Finance and Stochastics, Springer, vol. 12(2), pages 265-292, April. [Downloadable!] (restricted)
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