Empirical Performance Study of Alternative Option Pricing Models: An Application to the French Option Market

ESSEC Department of Finance Working Paper

Posted: 20 May 2003

See all articles by Sofiane Aboura

Sofiane Aboura

Université Paris XIII Nord - Department of Economics and Management

Date Written: June 2001

Abstract

The mispricing of the deep-in-the money and deep-out-the-money generated by the Black-Scholes (1973) model is now well documented in the literature. In this paper, we discuss different option valuation models on the basis of empirical tests carry out on the French option market. We examine methods that account for non-normal skewness and kurtosis, relax the martingale restriction, mix two log-normal distributions, and allows either for jump diffusion process or for stochastic volatility. We find that the use of a jump diffusion and stochastic volatility model performs as well as the inclusion of non normal skewness and kurtosis in terms of precision in the option valuation.

Keywords : Implied Volatility, Stochastic Volatility Model, Jump Diffusion Model, Skewness, Kurtosis

JEL Classification: C13, G13

Suggested Citation

Aboura, Sofiane, Empirical Performance Study of Alternative Option Pricing Models: An Application to the French Option Market (June 2001). ESSEC Department of Finance Working Paper. Available at SSRN: https://ssrn.com/abstract=396521 or http://dx.doi.org/10.2139/ssrn.396521

Sofiane Aboura (Contact Author)

Université Paris XIII Nord - Department of Economics and Management ( email )

99 avenue Jean-Baptiste
Clément, Villetaneuse 93430
France

Register to save articles to
your library

Register

Paper statistics

Abstract Views
1,837
PlumX Metrics