Option Price Estimations and Speculative Trading In Knowledge Society
Derivatives market has known an enormous and continuous development from the late 1970s, thanks to the most celebrated Black-Scholes-Merton formula. The impact on global economy is also tremendous, but due to the high leverage of speculative option trading there is a perpetual danger of economic collapse. This paper gives a short description of knowledge society and proposes methods for option price estimation based on implied volatility, skewness and kurtosis. â€˜Free-lunchâ€™ is hardly achievable if one predicts the option price using the knowledgeable information from the market and there is almost impossible to speculate, rather than to hedge, when trading option.
Volume (Year): 16 (2012)
Issue (Month): 4 ()
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- Emmanuel Jurczenko & Bertrand Maillet & Bogdan Negrea, 2002.
"Skewness and kurtosis implied by option prices: a second comment,"
LSE Research Online Documents on Economics
24938, London School of Economics and Political Science, LSE Library.
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- Robert C. Merton, 2005. "Theory of rational option pricing," World Scientific Book Chapters,in: Theory Of Valuation, chapter 8, pages 229-288 World Scientific Publishing Co. Pte. Ltd..
- Robert C. Merton, 1973. "Theory of Rational Option Pricing," Bell Journal of Economics, The RAND Corporation, vol. 4(1), pages 141-183, Spring.
- Hayunga, Darren K. & Holowczak, Richard D. & Lung, Peter P. & Nishikawa, Takeshi, 2012. "Derivatives traders’ reaction to mispricing in the underlying equity," Journal of Banking & Finance, Elsevier, vol. 36(9), pages 2438-2454. Full references (including those not matched with items on IDEAS)
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