Implied volatility skews and stock index skewness and kurtosis implied by S&P 500 index option prices

Charles J. Corrado, Tie Su

Research output: Contribution to journalArticle

60 Citations (Scopus)

Abstract

The Black-Scholes option pricing model is used to value a wide range of option contracts. It ofictt prices deep in-the-money and deep cut-of-the-money options inconsistently, a phenomenon tve refer to as a volatility "skew" or "smile. " This article applies an extension of the Black-Scholes model developed by jarrow and Rudd to an investigation of S&P 500 index option prices. Non-normal skewness and kurtosis in option-implied distributions of index returns are found to contribute significantly to the phenomenon of volatility skews.

Original languageEnglish (US)
Pages (from-to)8-19
Number of pages12
JournalJournal of Derivatives
Volume4
Issue number4
DOIs
StatePublished - Jun 1 1997

Fingerprint

Implied volatility skew
Option prices
Index options
Stock index
Kurtosis
Skewness
Implied distributions
Smile
Option contract
Black-Scholes
Option pricing model
Black-Scholes model

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

Cite this

Implied volatility skews and stock index skewness and kurtosis implied by S&P 500 index option prices. / Corrado, Charles J.; Su, Tie.

In: Journal of Derivatives, Vol. 4, No. 4, 01.06.1997, p. 8-19.

Research output: Contribution to journalArticle

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