Skewness and stock option prices

Skewness and stock option prices

Author: Aleks_K On: 10.07.2017

Option Workbench - Option Trading Analysis Software | Option Strategist

The Black-Scholes option pricing model has several well-known deficiencies. Perhaps most significantly, Black-Scholes assumes that prices are log-normally distributed.

In reality, howeer, investors see more extreme behavior than predicted by the normal distribution; in fact, extreme events occur 10 times more often than the normal distribution would have you assume. Extreme behavior in returns distributions can be described by two statistical quantities known as skew and kurtosis.

A peaky distribution has fat tails, with a lower probability of extreme behavior this is also known as leptokurtic. Their novel approach expanded the normal density function with a Gram-Charlier approach.

skewness and stock option prices

This resulted in a pricing formula that was equal to the standard Black-Scholes equations plus terms that capture excess skew and kurtosis. The corrected equations are.

Volatility (finance) - Wikipedia

The quations are programmed in VBA, which can be viewed, edited and used in your own applications. Please link to http: Download Excel Spreadsheet to Price European Options with Skew and Kurtosis.

Apple Inc. (AAPL) Option Chain - Stock Puts & Calls - pupuzifecose.web.fc2.com

Your email address will not be published. Skip to content Privacy Policy About Me Questions About The Spreadsheets? Premium Excel Tools Kudos Baby.

Business Analysis Portfolio Analysis Option Pricing Technical Trading Buy Spreadsheets Commentary.

Option Pricing with Skew and Kurtosis

Home Option Pricing Option Pricing with Skew and Kurtosis Option Pricing with Skew and Kurtosis 0. Leave a Reply Cancel reply Your email address will not be published.

Please leave these two fields as-is: To be able to proceed, you need to solve the following simple math so we know that you are a human: Like the Free Spreadsheets? This site takes time to develop.

This website uses cookies to improve your experience. We'll assume you're ok with this, but you can opt-out if you wish. Twitter Tweets by investexcel.

inserted by FC2 system