2020
DOI: 10.1155/2020/1603509
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Estimation of Tail Risk and Moments Using Option Prices with a Novel Pricing Model under a Distorted Lognormal Distribution

Abstract: Risk measures based on the trading option prices in the market are forward-looking, such as VIX. We propose a new method combining distorted lognormal distribution with interpolation to price options accurately and then estimate tail risk. Our method can price the option of any strikes between the maximum and the minimum value of strikes in the real market, which reduces the instability and inaccuracy of using the limited option to measure the risk. In addition, our novel method treats the underlying asset pri… Show more

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Cited by 1 publication
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“…(2) asymmetric distributions, such as skewed-t [19], variance gamma [20], Weibull [21], and distorted lognormal distribution [22]; and (3) mixture distribution such as the mixture of Gaussian and heavy-tailed model [23].…”
Section: Introductionmentioning
confidence: 99%
“…(2) asymmetric distributions, such as skewed-t [19], variance gamma [20], Weibull [21], and distorted lognormal distribution [22]; and (3) mixture distribution such as the mixture of Gaussian and heavy-tailed model [23].…”
Section: Introductionmentioning
confidence: 99%