A study on one-factor option pricing model and implied systematic risk factor†
Kwangyee Ko1 · Young Sook Son2
12Department of Statistics, Chonnam National University
Correspondence to: Department of Statistics, Chonnam National University, Yongbong-ro 77, Buk-Gu, Gwangju 61186, Korea. E-mail: ysson@jnu.ac.kr
Received May 15, 2018; Revised May 23, 2018; Accepted May 24, 2018.
This is an Open Access article distributed under the terms of the Creative Commons Attribution Non-Commercial License (http://creativecommons.org/licenses/by-nc/3.0) which permits unrestricted non-commercial use, distribution, and reproduction in any medium, provided the original work is properly cited.
- Abstract
- The probability distribution of returns on underlying assets in the Black-Scholes option pricing model has been always assumed to be fixed normal regardless of future economic conditions. However, in many studies, it is known that the return distribution of assets has a higher peak and two thicker tails than those of the normal distribution, and there exist a few jumps according to economic fluctuation. In this paper, we propose a one-factor option pricing model based on a return distribution that can structurally reflect the future economic situation. We also investigate the characteristics of implied systematic risk factor that satisfies the actual price in the one-factor option pricing model.
- Keywords : Black-Scholes model, implied systematic risk factor, implied volatility, one-factor option pricing model, systematic risk factor, Wiener stochastic process.
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