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Empirical Performance Study of Alternative Option Pricing Models: An Application to the French Option Market

Author

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  • Sofiane Aboura

    (DRM - Dauphine Recherches en Management - Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres - CNRS - Centre National de la Recherche Scientifique)

Abstract

The mispricing of the deep-in-the money and deep-out-the-money generated by the Black and Scholes model is now well documented in the literature. In this paper, we discuss different option valuation models on the basis of empirical tests carry out on the French option market. We examine methods that account for non-normal skewness and kurtosis, relax the martingale restriction, mix two log-normal distributions, and allows either for jump diffusion process or for stochastic volatility. We find that the use of a jump diffusion and stochastic volatility model performs as well as the inclusion of non normal skewness and kurtosis in terms of precision in the option valuation.

Suggested Citation

  • Sofiane Aboura, 2013. "Empirical Performance Study of Alternative Option Pricing Models: An Application to the French Option Market," Post-Print hal-01531319, HAL.
    • Handle: RePEc:hal:journl:hal-01531319
    DOI: 10.4172/2168-9458.1000108
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    Cited by:

    1. Bodo Herzog & Sufyan Osamah, 2019. "Reverse Engineering of Option Pricing: An AI Application," IJFS, MDPI, vol. 7(4), pages 1-12, November.

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