The Hidden Martingale Restriction in Gram-Charlier Option Prices
Journal of Futures Markets, Forthcoming
Posted: 11 Aug 2006
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: Suggested Citation