Empirical Performance Study of Alternative Option Pricing Models: An Application to the French Option Market
Department of finance, University of Paris Dauphine, France
- *Corresponding Author:
- Sofiane Aboura
Department of finance
University of Paris Dauphine
Place du Maréchal de Lattre de Tassigny
Paris Cedex 75775, France
Tel: 01 44 05 45 65
E-mail: [email protected]
Received Date: June 22, 2013; Accepted Date: July 29, 2013; Published Date: July 31, 2013
Citation: Aboura S (2013) Empirical Performance Study of Alternative Option Pricing Models: An Application to the French Option Market. J Stock Forex Trad 2:108. doi: 10.4172/2168-9458.1000108
Copyright: © 2013 Aboura S. This is an open-access article distributed under the terms of the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original author and source are credited.
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.