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Option Implied Moments: An Application to Nikkei 225 Futures Options

Author

Listed:
  • Kian-Ping Ang

    (United Overseas Bank Group, 80 Raffles Place, Singapore 048624, Singapore)

  • Shafiqur Rahman

    (School of Business Administration, Portland State University, P. O. Box 751 Portland, OR 97201-0751, USA)

  • Kok-Hui Tan

    (Division of Banking and Finance, Nanyang Business School, Nanyang Technological University, Nanyang Avenue, Singapore 639798, Singapore)

Abstract

This paper proposes an integrated process to recover the moments of the risk-neutral distribution using a Gram-Charlier expansion series and Rubinstein's implied binomial tree approach. The advantage of using the implied tree approach is that it accounts for the possibility of early exercise of American options. We apply the method to American-style options on Nikkei 225 futures. We then demonstrate how to use the implied moments for trading options.

Suggested Citation

  • Kian-Ping Ang & Shafiqur Rahman & Kok-Hui Tan, 2002. "Option Implied Moments: An Application to Nikkei 225 Futures Options," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 5(03), pages 301-320.
    • Handle: RePEc:wsi:rpbfmp:v:05:y:2002:i:03:n:s0219091502000821
    DOI: 10.1142/S0219091502000821
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    Citations

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    Cited by:

    1. Leonidas S. Rompolis & Elias Tzavalis, 2017. "Retrieving risk neutral moments and expected quadratic variation from option prices," Review of Quantitative Finance and Accounting, Springer, vol. 48(4), pages 955-1002, May.

    More about this item

    Keywords

    Implied Volatility; Binomial Tree; Futures Options;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G2 - Financial Economics - - Financial Institutions and Services
    • G3 - Financial Economics - - Corporate Finance and Governance

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