The aim of this paper is to discuss the no-arbitrage condition in option implied trees based on forward induction and to propose a no-arbitrage test that rules out the negative probabilities problem and hence enhances the pricing performance. The no-arbitrage condition takes into account two main features: the position of the node in the tree and the relation between the dividend yield and the risk-free rate. The proposed methodology is tested in and out of sample with Italian index options data and findings support a good pricing performance.

Call and put implied volatilities and the derivation of option implied trees / Moriggia, V; Muzzioli, Silvia; Torricelli, Costanza. - In: FRONTIERS IN FINANCE AND ECONOMICS. - ISSN 1814-2044. - STAMPA. - 4:1(2007), pp. .35-.64.

Call and put implied volatilities and the derivation of option implied trees

MUZZIOLI, Silvia;TORRICELLI, Costanza
2007

Abstract

The aim of this paper is to discuss the no-arbitrage condition in option implied trees based on forward induction and to propose a no-arbitrage test that rules out the negative probabilities problem and hence enhances the pricing performance. The no-arbitrage condition takes into account two main features: the position of the node in the tree and the relation between the dividend yield and the risk-free rate. The proposed methodology is tested in and out of sample with Italian index options data and findings support a good pricing performance.
4
1
.35
.64
Call and put implied volatilities and the derivation of option implied trees / Moriggia, V; Muzzioli, Silvia; Torricelli, Costanza. - In: FRONTIERS IN FINANCE AND ECONOMICS. - ISSN 1814-2044. - STAMPA. - 4:1(2007), pp. .35-.64.
Moriggia, V; Muzzioli, Silvia; Torricelli, Costanza
File in questo prodotto:
File Dimensione Formato  
PUBBLICAZIONE N.13 FFE 2007.pdf

non disponibili

Descrizione: versione pubblicata
Tipologia: Versione dell'editore (versione pubblicata)
Dimensione 369.6 kB
Formato Adobe PDF
369.6 kB Adobe PDF   Visualizza/Apri   Richiedi una copia
Pubblicazioni consigliate

Caricamento pubblicazioni consigliate

Licenza Creative Commons
I metadati presenti in IRIS UNIMORE sono rilasciati con licenza Creative Commons CC0 1.0 Universal, mentre i file delle pubblicazioni sono rilasciati con licenza Attribuzione 4.0 Internazionale (CC BY 4.0), salvo diversa indicazione.
In caso di violazione di copyright, contattare Supporto Iris

Utilizza questo identificativo per citare o creare un link a questo documento: http://hdl.handle.net/11380/459640
Citazioni
  • ???jsp.display-item.citation.pmc??? ND
  • Scopus ND
  • ???jsp.display-item.citation.isi??? ND
social impact