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Taking into account extreme events in European option pricing

dc.contributor.authorIdier, Julien
dc.contributor.authorJardet, Caroline
dc.contributor.authorLe Fol, Gaëlle
dc.contributor.authorMonfort, Alain
dc.contributor.authorPegoraro, Fulvio
dc.date.accessioned2011-01-05T17:24:10Z
dc.date.available2011-01-05T17:24:10Z
dc.date.issued2008
dc.identifier.urihttps://basepub.dauphine.fr/handle/123456789/5390
dc.language.isoenen
dc.subjecttail risken
dc.subjectoption pricing modelsen
dc.subject.ddc332en
dc.subject.classificationjelG19en
dc.titleTaking into account extreme events in European option pricingen
dc.typeArticle accepté pour publication ou publié
dc.description.abstractenAccording to traditional option pricing models, financial markets underestimate the impact of tail risk. In this article, we put forward a European option pricing model based on a set of assumptions that ensure, inter alia, that extreme events are better taken into account. Using simulations, we compare the option prices obtained from the standard Black and Scholes model with those resulting from our model. We show that the traditional model leads to an overvaluation of at-the-money options, which are the most traded options, while the less liquid in-the-money and out-of-the-money options are undervalued.en
dc.relation.isversionofjnlnameFinancial Stability Review
dc.relation.isversionofjnlissue12en
dc.relation.isversionofjnldate2008-10
dc.relation.isversionofjnlpages39-51en
dc.description.sponsorshipprivateouien
dc.relation.isversionofjnlpublisherBanque de Franceen
dc.subject.ddclabelEconomie financièreen


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