Parametric properties of semi-nonparametric distributions, with applications to option valuation

• Autores: Angel León Valle, Javier Mencía
• Localización: Documentos de Trabajo ( CEMFI ), Nº. 9, 2005
• Idioma: inglés
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• Dialnet Métricas: 1 Cita
• Resumen

  • We derive the statistical properties of the SNP densities of Gallant and Nychka (1987). We show that these densities, which are always positive, are more general than the truncated Gram-Charlier expansions of Jondeau and Rochinger (2001), who impose parameter restrictions to ensure positivity. We also use the SNP densities for option valuation. We relate real and risk-neutral measures, obtain closed-form prices for European options, and study the ¿Greeks¿. We show that SNP densities generate wider option price ranges than the truncated expansions. In an empirical application to S&P 500 index options, we find that the SNP model beats the standard and Practitioner¿s Black-Scholes formulas, and truncated expansions.