The use of density estimation in pricing options : Australian evidence

Howes, Richard. (1992). The use of density estimation in pricing options : Australian evidence Honours Thesis, School of Business, The University of Queensland.

       
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Author Howes, Richard.
Thesis Title The use of density estimation in pricing options : Australian evidence
School, Centre or Institute School of Business
Institution The University of Queensland
Publication date 1992
Thesis type Honours Thesis
Total pages 195
Language eng
Subjects 14 Economics
Formatted abstract In this thesis the ability of a model developed by Stephen Gray (1992) to price Australian exchange-traded call options is tested against the Black-Scholes option pricing model. The model uses non-parametric density estimation techniques to form a proxy of the underlying stock's true distribution. In so doing, the need for specific assumptions about the return generation process of the stock is removed. The only distributional assumption made by the model is that it is stationary. In addition, tests are carried out in order to determine whether or not biases in the Black-Scholes can be explained by departures from normality of the return distribution proxy. Results do not support the superiority of the Gray model. Further, the Black-Scholes biases found are 'unable to be explained by departures from normality. Further investigation supports the violation of the assumption of non-stationarity as a partial explanation of these results.

 
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