The Hidden Martingale Restriction in Gram-Charlier Option Prices

Journal of Futures Markets, Forthcoming

Posted: 11 Aug 2006

See all articles by Charles J. Corrado

Charles J. Corrado

Deakin University - School of Accounting, Economics & Finance

Abstract

A hidden martingale restriction is developed for option pricing models based on Gram-Charlier expansions of the normal density function. The restriction is hidden behind a reduction in parameter space for the Gram-Charlier expansion coefficients. The resulting restriction is invisible in the option price.

Keywords: Option prices, martingale restriction, skewness, kurtosis, Gram-Charlier density expansions

JEL Classification: C14, G12, G13

Suggested Citation

Corrado, Charles J., The Hidden Martingale Restriction in Gram-Charlier Option Prices. Journal of Futures Markets, Forthcoming, Available at SSRN: https://ssrn.com/abstract=923709

Charles J. Corrado (Contact Author)

Deakin University - School of Accounting, Economics & Finance ( email )

221 Burwood Highway
Burwood, Victoria 3215
Australia
61492446214 (Phone)

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