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Estimation of Tail Risk and Moments Using Option Prices with a Novel Pricing Model under a Distorted Lognormal Distribution
Joint Authors
Zheng, Chengli
Chen, Yan
Cai, Ya
Source
Mathematical Problems in Engineering
Issue
Vol. 2020, Issue 2020 (31 Dec. 2020), pp.1-25, 25 p.
Publisher
Hindawi Publishing Corporation
Publication Date
2020-07-20
Country of Publication
Egypt
No. of Pages
25
Main Subjects
Abstract EN
Risk measures based on the trading option prices in the market are forward-looking, such as VIX.
We propose a new method combining distorted lognormal distribution with interpolation to price options accurately and then estimate tail risk.
Our method can price the option of any strikes between the maximum and the minimum value of strikes in the real market, which reduces the instability and inaccuracy of using the limited option to measure the risk.
In addition, our novel method treats the underlying asset price as a stochastic indicator rather than a fixed indicator as described in previous research studies for risk measurement.
Moreover, even if the available sample size is very small, we can measure the risk stably and precisely after interpolation.
Finally, the empirical test results of SP500 market show that this method has good performance, especially for the option markets with sparse strikes.
American Psychological Association (APA)
Chen, Yan& Cai, Ya& Zheng, Chengli. 2020. Estimation of Tail Risk and Moments Using Option Prices with a Novel Pricing Model under a Distorted Lognormal Distribution. Mathematical Problems in Engineering،Vol. 2020, no. 2020, pp.1-25.
https://search.emarefa.net/detail/BIM-1193353
Modern Language Association (MLA)
Chen, Yan…[et al.]. Estimation of Tail Risk and Moments Using Option Prices with a Novel Pricing Model under a Distorted Lognormal Distribution. Mathematical Problems in Engineering No. 2020 (2020), pp.1-25.
https://search.emarefa.net/detail/BIM-1193353
American Medical Association (AMA)
Chen, Yan& Cai, Ya& Zheng, Chengli. Estimation of Tail Risk and Moments Using Option Prices with a Novel Pricing Model under a Distorted Lognormal Distribution. Mathematical Problems in Engineering. 2020. Vol. 2020, no. 2020, pp.1-25.
https://search.emarefa.net/detail/BIM-1193353
Data Type
Journal Articles
Language
English
Notes
Includes bibliographical references
Record ID
BIM-1193353