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Option pricing based on the generalized lambda distribution
Author(s) -
Corrado Charles J.
Publication year - 2001
Publication title -
journal of futures markets
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.88
H-Index - 55
eISSN - 1096-9934
pISSN - 0270-7314
DOI - 10.1002/1096-9934(200103)21:3<213::aid-fut2>3.0.co;2-h
Subject(s) - kurtosis , skewness , lambda , range (aeronautics) , econometrics , distribution (mathematics) , variance gamma distribution , valuation of options , statistical physics , mathematics , economics , physics , statistics , mathematical analysis , asymptotic distribution , engineering , quantum mechanics , estimator , aerospace engineering
This article proposes the generalized lambda distribution as a tool for modeling nonlognormal security price distributions. Known best as a facile model for generating random variables with a broad range of skewness and kurtosis values, the generalized lambda distribution has potential financial applications, including Monte Carlo simulations, estimations of option‐implied state price densities, and almost any situation requiring a flexible density shape. A multivariate version of the generalized lambda distribution is developed to facilitate stochastic modeling of portfolios of correlated primary and derivative securities. © 2001 John Wiley & Sons, Inc. Jrl Fut Mark 21:213–236, 2001