Publication: A general closed form option pricing formula
A general closed form option pricing formula
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Necula, C., Drimus, G., & Farkas, W. (2019). A general closed form option pricing formula. Review of Derivatives Research, 22, 1–40. https://doi.org/10.1007/s11147-018-9144-z
Abstract
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A new method to retrieve the risk-neutral probability measure from observed option prices is developed and a closed form pricing formula for European options is obtained by employing a modified Gram–Charlier series expansion, known as the Gauss–Hermite expansion. This expansion converges for fat-tailed distributions commonly encountered in the study of financial returns. The expansion coefficients can be calibrated from observed option prices and can also be computed, for example, in models with the probability density function or the
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- Necula, Ciprian
- Drimus, Gabriel
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Necula, C., Drimus, G., & Farkas, W. (2019). A general closed form option pricing formula. Review of Derivatives Research, 22, 1–40. https://doi.org/10.1007/s11147-018-9144-z