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Bakshi, Kapadia, and Madan (2003) risk-neutral moment estimators: A Gram–Charlier density approach
- Source :
- Review of Derivatives Research. 25:233-281
- Publication Year :
- 2022
- Publisher :
- Springer Science and Business Media LLC, 2022.
-
Abstract
- This paper is a sequel to Aschakulporn and Zhang (J Futures Mark 42(3):365–388, 2022). The errors of the Bakshi et al. (Rev Financ Stud 16(1):101–143, 2003) risk-neutral moment estimators is studied using the Gram–Charlier density—with the skewness and excess kurtosis specified. To obtain skewness with (absolute) errors less than $$10^{-3}$$ 10 - 3 , the range of strikes ($$K_{\min }, K_{\max }$$ K min , K max ) must contain at least 3/4 to 4/3 of the forward price and have a step size ($$\Delta K$$ Δ K ) of no more than 0.1% of the forward price. The range of strikes and step size corresponds to truncation and discretization errors, respectively. This is consistent to Aschakulporn and Zhang (2022) for non-volatile market periods.
- Subjects :
- Economics, Econometrics and Finance (miscellaneous)
Finance
Subjects
Details
- ISSN :
- 15737144 and 13806645
- Volume :
- 25
- Database :
- OpenAIRE
- Journal :
- Review of Derivatives Research
- Accession number :
- edsair.doi...........7fac225d83ce7673c960bdfe0e98947a