Implicit probability distribution for WTI options: The Black Scholes vs. the semi-nonparametric approach

This paper contributes to the literature on the estimation of the Risk Neutral Density (RND) function by modeling the prices of options for West Texas Intermediate (WTI) crude oil that were traded in the period between January 2016 and January 2017. For these series we extract the implicit RND in th...

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Autores:
Cortés, Lina M.
Mora-Valencia, Andrés
Perote, Javier
Tipo de recurso:
Fecha de publicación:
2017
Institución:
Universidad EAFIT
Repositorio:
Repositorio EAFIT
Idioma:
eng
OAI Identifier:
oai:repository.eafit.edu.co:10784/11906
Acceso en línea:
http://hdl.handle.net/10784/11906
Palabra clave:
Oil prices
option pricing
risk neutral density
semi-nonparametric approach
Precios del petróleo
fijación de precios de opciones
densidad neutra de riesgo
enfoque semi-no paramétrico
Rights
License
Acceso abierto
id REPOEAFIT2_e6b70280b26e27f6affa48334b3279b6
oai_identifier_str oai:repository.eafit.edu.co:10784/11906
network_acronym_str REPOEAFIT2
network_name_str Repositorio EAFIT
repository_id_str
dc.title.eng.fl_str_mv Implicit probability distribution for WTI options: The Black Scholes vs. the semi-nonparametric approach
title Implicit probability distribution for WTI options: The Black Scholes vs. the semi-nonparametric approach
spellingShingle Implicit probability distribution for WTI options: The Black Scholes vs. the semi-nonparametric approach
Oil prices
option pricing
risk neutral density
semi-nonparametric approach
Precios del petróleo
fijación de precios de opciones
densidad neutra de riesgo
enfoque semi-no paramétrico
title_short Implicit probability distribution for WTI options: The Black Scholes vs. the semi-nonparametric approach
title_full Implicit probability distribution for WTI options: The Black Scholes vs. the semi-nonparametric approach
title_fullStr Implicit probability distribution for WTI options: The Black Scholes vs. the semi-nonparametric approach
title_full_unstemmed Implicit probability distribution for WTI options: The Black Scholes vs. the semi-nonparametric approach
title_sort Implicit probability distribution for WTI options: The Black Scholes vs. the semi-nonparametric approach
dc.creator.fl_str_mv Cortés, Lina M.
Mora-Valencia, Andrés
Perote, Javier
dc.contributor.eafitauthor.none.fl_str_mv lcortesd@eafit.edu.co
dc.contributor.author.none.fl_str_mv Cortés, Lina M.
Mora-Valencia, Andrés
Perote, Javier
dc.subject.keyword.eng.fl_str_mv Oil prices
option pricing
risk neutral density
semi-nonparametric approach
topic Oil prices
option pricing
risk neutral density
semi-nonparametric approach
Precios del petróleo
fijación de precios de opciones
densidad neutra de riesgo
enfoque semi-no paramétrico
dc.subject.keyword.spa.fl_str_mv Precios del petróleo
fijación de precios de opciones
densidad neutra de riesgo
enfoque semi-no paramétrico
description This paper contributes to the literature on the estimation of the Risk Neutral Density (RND) function by modeling the prices of options for West Texas Intermediate (WTI) crude oil that were traded in the period between January 2016 and January 2017. For these series we extract the implicit RND in the option prices by applying the traditional Black & Scholes (1973) model and the semi-nonparametric (SNP) model proposed by Backus, Foresi, Li, & Wu (1997). The results obtained show that when the average market price is compared to the average theoretical price, the lognormal specification tends to systematically undervalue the estimation. On the contrary, the SNP option pricing model, which explicitly adjust for negative skewness and excess kurtosis, results in markedly improved accuracy.
publishDate 2017
dc.date.issued.none.fl_str_mv 2017-12-05
dc.date.available.none.fl_str_mv 2018-01-18T16:01:08Z
dc.date.accessioned.none.fl_str_mv 2018-01-18T16:01:08Z
dc.type.eng.fl_str_mv workingPaper
info:eu-repo/semantics/workingPaper
dc.type.coarversion.fl_str_mv http://purl.org/coar/version/c_b1a7d7d4d402bcce
dc.type.coar.fl_str_mv http://purl.org/coar/resource_type/c_8042
dc.type.local.spa.fl_str_mv Documento de trabajo de investigación
dc.type.hasVersion.eng.fl_str_mv draft
dc.identifier.uri.none.fl_str_mv http://hdl.handle.net/10784/11906
dc.identifier.jel.none.fl_str_mv Q47
G12
C14
url http://hdl.handle.net/10784/11906
identifier_str_mv Q47
G12
C14
dc.language.iso.eng.fl_str_mv eng
language eng
dc.rights.coar.fl_str_mv http://purl.org/coar/access_right/c_abf2
dc.rights.local.spa.fl_str_mv Acceso abierto
rights_invalid_str_mv Acceso abierto
http://purl.org/coar/access_right/c_abf2
dc.coverage.spatial.eng.fl_str_mv Medellín de: Lat: 06 15 00 N degrees minutes Lat: 6.2500 decimal degrees Long: 075 36 00 W degrees minutes Long: -75.6000 decimal degrees
dc.publisher.spa.fl_str_mv Universidad EAFIT
dc.publisher.department.spa.fl_str_mv Escuela de Economía y Finanzas
institution Universidad EAFIT
bitstream.url.fl_str_mv https://repository.eafit.edu.co/bitstreams/ca0aa3d9-cefa-46c1-b82d-f1fd15588ee8/download
https://repository.eafit.edu.co/bitstreams/bdb89187-0aa1-41fe-acb3-a2bde6afef39/download
bitstream.checksum.fl_str_mv 76025f86b095439b7ac65b367055d40c
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bitstream.checksumAlgorithm.fl_str_mv MD5
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repository.name.fl_str_mv Repositorio Institucional Universidad EAFIT
repository.mail.fl_str_mv repositorio@eafit.edu.co
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spelling Medellín de: Lat: 06 15 00 N degrees minutes Lat: 6.2500 decimal degrees Long: 075 36 00 W degrees minutes Long: -75.6000 decimal degrees2018-01-18T16:01:08Z2017-12-052018-01-18T16:01:08Zhttp://hdl.handle.net/10784/11906Q47G12C14This paper contributes to the literature on the estimation of the Risk Neutral Density (RND) function by modeling the prices of options for West Texas Intermediate (WTI) crude oil that were traded in the period between January 2016 and January 2017. For these series we extract the implicit RND in the option prices by applying the traditional Black & Scholes (1973) model and the semi-nonparametric (SNP) model proposed by Backus, Foresi, Li, & Wu (1997). The results obtained show that when the average market price is compared to the average theoretical price, the lognormal specification tends to systematically undervalue the estimation. On the contrary, the SNP option pricing model, which explicitly adjust for negative skewness and excess kurtosis, results in markedly improved accuracy.Este documento contribuye a la literatura sobre la estimación de la función de Densidad de Riesgo Neutral (RND) modelando los precios de las opciones del crudo West Texas Intermediate (WTI) que se comercializaron en el período comprendido entre enero de 2016 y enero de 2017. Para estas series, se extrae la RND implícita en los precios de las opciones aplicando el modelo tradicional Black & Scholes (1973) y el modelo semi-no paramétrico (SNP) propuesto por Backus, Foresi, Li y Wu (1997). Los resultados obtenidos muestran que cuando el precio promedio del mercado se compara con el precio teórico promedio, la especificación lognormal tiende a subestimar sistemáticamente la estimación. Por el contrario, el modelo de fijación de precios SNP, que se ajusta explícitamente a la asimetría negativa y al exceso de curtosis, da como resultado una precisión marcadamente mejorada.engUniversidad EAFITEscuela de Economía y FinanzasImplicit probability distribution for WTI options: The Black Scholes vs. the semi-nonparametric approachworkingPaperinfo:eu-repo/semantics/workingPaperDocumento de trabajo de investigacióndrafthttp://purl.org/coar/version/c_b1a7d7d4d402bccehttp://purl.org/coar/resource_type/c_8042Acceso abiertohttp://purl.org/coar/access_right/c_abf2Oil pricesoption pricingrisk neutral densitysemi-nonparametric approachPrecios del petróleofijación de precios de opcionesdensidad neutra de riesgoenfoque semi-no paramétricolcortesd@eafit.edu.coCortés, Lina M.Mora-Valencia, AndrésPerote, JavierLICENSElicense.txtlicense.txttext/plain; charset=utf-82556https://repository.eafit.edu.co/bitstreams/ca0aa3d9-cefa-46c1-b82d-f1fd15588ee8/download76025f86b095439b7ac65b367055d40cMD51ORIGINALWP-2017-23 Lina M. Cortés.pdfWP-2017-23 Lina M. Cortés.pdfDocumento de trabajo de investigaciónapplication/pdf1147075https://repository.eafit.edu.co/bitstreams/bdb89187-0aa1-41fe-acb3-a2bde6afef39/download089094b6f7738bee2a5468092d9061e2MD5210784/11906oai:repository.eafit.edu.co:10784/119062024-03-05 14:06:24.789open.accesshttps://repository.eafit.edu.coRepositorio Institucional Universidad EAFITrepositorio@eafit.edu.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