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Skewness and Kurtosis Trades

In: Handbook of Computational and Numerical Methods in Finance

Author

Listed:
  • Oliver J. Blaskowitz

    (Humboldt-Universität zu Berlin Wirtschaftswissenschaftliche Fakultät, Center for Applied Statistics and Economics (CASE))

  • Wolfgang K. Härdle

    (Humboldt-Universität zu Berlin Wirtschaftswissenschaftliche Fakultät, Center for Applied Statistics and Economics (CASE))

  • Peter Schmidt

    (Asset Management Research Bankgesellschaft Berlin AG, Quantitative Analyst Equities)

Abstract

In this paper we investigate the profitability of’ skewness trades’ and ‘kurtosis trades’ based on comparisons of implied state price densities versus historical densities. In particular, we examine the ability of SPD comparisons to detect structural breaks in the options market behaviour. While the implied state price density is estimated by means of the Barle and Cakici Implied Binomial Tree algorithm using a cross section of DAX option prices, the historical density is inferred by a combination of a non-parametric estimation from a historical time series of the DAX index and a forward Monte Carlo simulation.

Suggested Citation

  • Oliver J. Blaskowitz & Wolfgang K. Härdle & Peter Schmidt, 2004. "Skewness and Kurtosis Trades," Springer Books, in: Svetlozar T. Rachev (ed.), Handbook of Computational and Numerical Methods in Finance, chapter 1, pages 1-14, Springer.
    • Handle: RePEc:spr:sprchp:978-0-8176-8180-7_1
    DOI: 10.1007/978-0-8176-8180-7_1
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