An Empirical Study of Stock and American Option Prices

49 Pages Posted: 15 Mar 2012

See all articles by Diego Ronchetti

Diego Ronchetti

University of Groningen - SOM Research School

Date Written: March 14, 2012


This paper describes an empirical study of equity and American option markets. Without parameterizing the joint dynamics of stock return and its volatility, two results are obtained. First, both the considered markets are necessary to simultaneously quantify equity and variance risk premia. Second, when no parametric model for the stock return and its volatility is adopted, imposing absence of arbitrage in the markets improves the accuracy of the estimation of their dynamic properties. For example, the study reports improvements in the estimation of the correlation between return and volatility, the Sharpe ratio of an investment on the stock, skewness and kurtosis of returns.

Keywords: American option, equity risk premium, variance risk premium, leverage effect, Sharpe ratio, skewness and kurtosis, nonparametric estimation, model calibration, Generalized Method of Moments, Extended Method of Moments

Suggested Citation

Ronchetti, Diego, An Empirical Study of Stock and American Option Prices (March 14, 2012). Available at SSRN: or

Diego Ronchetti (Contact Author)

University of Groningen - SOM Research School ( email )

P.O. Box 800
9700 AV Groningen
+31 50 363 3460 (Phone)
+31 50 363 7337 (Fax)


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