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Option Pricing under Skewness and Kurtosis using a Cornish Fisher Expansion

This paper revisits the pricing of options, in a context of financial stress, when the underlying asset’s returns displays skewness and excess kurtosis. For that purpose, we use a Cornish- Fisher transformation for valuing option contracts with an exact formula allowing for heavy- tails.

An application to the FTSE 100 stock index option contracts during October 2008 provides evidence about the capability of the Cornish-Fisher model to improve calibration and pricing performance during a period of stress.

Amundi Working Paper - January 2015

ABOURA Sofiane , Associate Professor, Paris-Dauphine University
MAILLARD Didier , Professor - Conservatoire National des Arts et Métiers, Senior Advisor, Amundi

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Option Pricing under Skewness and Kurtosis using a Cornish Fisher Expansion
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