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One Other Option Pricing Scheme

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  • Jimin Lin

Abstract

We present a distinctive approach to parameterizing the risk neutral distribution. Using parsimonious and interpretable parameters, the model provides direct and localized control over the shape of the implied volatility curve. It captures a wide variety of shapes, including those with local concavity. Empirical results demonstrate accurate calibration across a quarter million curves from a two-year Standard and Poor's 500 index option dataset. The fitted parameters exhibit stable patterns across tenors, enabling term structure interpolation and dynamic process construction without static arbitrage.

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  • Jimin Lin, 2026. "One Other Option Pricing Scheme," Papers 2607.24680, arXiv.org.
    • Handle: RePEc:arx:papers:2607.24680
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    References listed on IDEAS

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    1. Cristian Homescu, 2011. "Implied Volatility Surface: Construction Methodologies and Characteristics," Papers 1107.1834, arXiv.org.
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    10. Jimin Lin, 2026. "Shallow Representation of Option Implied Information," Papers 2603.17151, arXiv.org.
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    13. Lykourgos Alexiou & Amit Goyal & Alexandros Kostakis & Leonidas Rompolis, 2025. "Pricing event risk: evidence from concave implied volatility curves," Review of Finance, European Finance Association, vol. 29(4), pages 963-1007.
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