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A Non-Parametric Option Pricing Model: Theory and Empirical Evidence

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  • Ren-Raw Chen

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  • Oded Palmon

    ()

Abstract

In this paper, we propose an empirically-based, non-parametric option pricing model to evaluate S&P 500 index options. Given the fact that the model is derived under the real measure, an equilibrium asset pricing model, instead of no-arbitrage, must be assumed. Using the histogram of past S&P 500 index returns, we find that most of the volatility smile documented in the literature disappears. Copyright Springer Science + Business Media, Inc. 2005

Suggested Citation

  • Ren-Raw Chen & Oded Palmon, 2005. "A Non-Parametric Option Pricing Model: Theory and Empirical Evidence," Review of Quantitative Finance and Accounting, Springer, vol. 24(2), pages 115-134, January.
  • Handle: RePEc:kap:rqfnac:v:24:y:2005:i:2:p:115-134 DOI: 10.1007/s11156-005-6333-2
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    References listed on IDEAS

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