IDEAS home Printed from https://ideas.repec.org/p/hal/journl/hal-01526341.html
   My bibliography  Save this paper

Option Pricing with a Dynamic Fat-Tailed Model

Author

Listed:
  • Sofiane Aboura

    (DRM - Dauphine Recherches en Management - Université Paris-Dauphine - CNRS - Centre National de la Recherche Scientifique)

  • Sébastien Valeyre
  • Niklas Wagner

    (Passau University - Passau University)

Abstract

In the aftermath of the 2008 financial crisis, the need to consider more realistic risk models for derivative products has received renewed attention. We introduce a dynamic model for the pricing of European-style options with various attractive features such as a mixture of heavy-tails and Gaussian distribution along with a leverage effect property. We test the model on FTSE 100 stock index options during the period of January 2008 to June 2009. Our empirical results show that the model adequately fits the volatility smile dynamics particularly during stress periods. Furthermore, we find that the leverage effect form is driven by the sticky-strike rule.

Suggested Citation

  • Sofiane Aboura & Sébastien Valeyre & Niklas Wagner, 2013. "Option Pricing with a Dynamic Fat-Tailed Model," Post-Print hal-01526341, HAL.
  • Handle: RePEc:hal:journl:hal-01526341
    Note: View the original document on HAL open archive server: https://hal.archives-ouvertes.fr/hal-01526341
    as

    Download full text from publisher

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a search for a similarly titled item that would be available.

    Other versions of this item:

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:hal:journl:hal-01526341. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (CCSD). General contact details of provider: https://hal.archives-ouvertes.fr/ .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.