Skewness- and Kurtosis-adjusted American Option Pricing Model

• Main Authors: Hsing, Ta-Jen, 邢大任
• Other Authors: An-Sing Chen
• Format: Others
• Language: zh-TW
• Published: 1998
• Online Access: http://ndltd.ncl.edu.tw/handle/72832617355691413308

碩士 === 國立中正大學 === 財務金融學系 === 86 === The traditional American pricing model frequently misprices deep-in-the-money and deep-out-of-the-money options. Practitioners popularly refer to these strike price biase as volatility smiles. In this paper we exam in a methodto extend the Barone-Adesi and Whaley (1987) American option pricing modelto account for biases induced by nonnormal skewness and kurtosis in stockreturn distributions. The method adapts a Gram- Charlier series expansion ofthe normal density function to provide skewness and kurtosis adjustment termsfor the Barone- Adesi and Whaley's(1987) formula. Using this method, we estimateoption implied coefficients of skewness and kurtosis in S&P 500 index futuresreturns. We find significant nonnormal skewness and kurtosis implied by option price.