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Martingalized historical approach for option pricing

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Author Info
Christophe Chorro () (Centre d'Economie de la Sorbonne)
Dominique Guegan () (Centre d'Economie de la Sorbonne - Paris School of Economics)
Florian Ielpo () (Centre d'Economie de la Sorbonne)

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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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Publisher Info
Paper provided by Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne in its series Documents de travail du Centre d'Economie de la Sorbonne with number 09021.

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Length: 7 pages
Date of creation: Apr 2009
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Handle: RePEc:mse:cesdoc:09021

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Web page: http://ces.univ-paris1.fr/
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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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Find related papers by JEL classification:
G1 - Financial Economics - - General Financial Markets
C5 - Mathematical and Quantitative Methods - - Econometric Modeling

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This page was last updated on 2009-11-23.

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