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Activity Number:
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181
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Type:
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Contributed
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Date/Time:
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Monday, August 1, 2016 : 10:30 AM to 12:20 PM
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Sponsor:
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IMS
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Abstract #319184
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View Presentation
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Title:
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An Innovative Moment-Implied Method for Financial Derivative Pricing
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Author(s):
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SHUANG ZHOU* and Keren Li and Fangfang Wang and Jie Yang
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Companies:
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University of Illinois at Chicago and University of Illinois at Chicago and University of Illinois at Chicago and University of Illinois at Chicago
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Keywords:
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Financial statistics ;
Risk management ;
Normal Inverse Gaussian Distribution ;
Feasible Domain ;
Option Pricing ;
Risk-neutral density
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Abstract:
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Normal Inverse Gaussian (NIG) distribution has been widely used in risk-neutral density approximation towards financial derivative pricing. Its advantage lies in that it can be characterized by its first four important moments. Accurate estimation of the four moments has been the key part in moment-based method in financial derivative pricing. In this article, we provided an innovative method for moment estimation. In order to compare our approach with classical ones in the literature, we collect European call and put option market prices based on the underlying S&P 500 index between 1996 and 2004. We apply our method to predict option market prices using the out-the-money option prices only. Our method shows better accuracy based on the cross-validation results.
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Authors who are presenting talks have a * after their name.
