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Binomial Option Pricing with Skewed Asset Returns

Binomial Option Pricing with Skewed Asset Returns This research presents a method for estimating the parameters of the binomial option pricing model necessary to appropriately price calls on assets with asymmetric end-of-period return distributions. Parameters of the binomial model are shown to be a function of the mean, variance, and skewness of the underlying return distribution. It is also shown that failure to incorporate skewness results in the mispricing of the call. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Quantitative Finance and Accounting Springer Journals

Binomial Option Pricing with Skewed Asset Returns

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References (14)

Publisher
Springer Journals
Copyright
Copyright © 1997 by Kluwer Academic Publishers
Subject
Finance; Corporate Finance; Accounting/Auditing; Econometrics; Operation Research/Decision Theory
ISSN
0924-865X
eISSN
1573-7179
DOI
10.1023/A:1008283011490
Publisher site
See Article on Publisher Site

Abstract

This research presents a method for estimating the parameters of the binomial option pricing model necessary to appropriately price calls on assets with asymmetric end-of-period return distributions. Parameters of the binomial model are shown to be a function of the mean, variance, and skewness of the underlying return distribution. It is also shown that failure to incorporate skewness results in the mispricing of the call.

Journal

Review of Quantitative Finance and AccountingSpringer Journals

Published: Sep 29, 2004

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