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Testing the martingale restriction for option implied densities

✍ Scribed by Thomas Busch

Book ID
106514056
Publisher
Springer US
Year
2008
Tongue
English
Weight
250 KB
Volume
11
Category
Article
ISSN
1380-6645

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The study tests Longstaff 's martingale restriction on S&P 500 index options over the period 1990-1994. Assuming the S&P index follows a lognormal distribution results in systematic violations of the martingale restriction, the implied index value from options consistently overestimating the market