Testing option pricing with the Edgeworth expansion

There is a well-developed framework, the Black-Scholes theory, for the pricing of contracts based on the future prices of certain assets, called options. This theory assumes that the probability distribution of the returns of the underlying asset is a Gaussian distribution. However, it is observed in the market that this hypothesis is flawed, leading to the introduction of a fudge factor, the so-called volatility smile. Therefore, it would be interesting to explore extensions of the Black-Scholes theory to non-Gaussian distributions. In this paper, we provide an explicit formula for the price of an option when the distributions of the returns of the underlying asset is parametrized by an Edgeworth expansion, which allows for the introduction of higher independent moments of the probability distribution, namely skewness and kurtosis. We test our formula with options in the Brazilian and American markets, showing that the volatility smile can be reduced. We also check whether our approach leads to more efficient hedging strategies of these instruments. (C) 2004 Elsevier B.V. All rights reserved.

Anisotropic sound and shock waves in dipolar Bose-Einstein condensate

Fundação de Amparo à Pesquisa do Estado de São Paulo (FAPESP)

Mean-field equations for cigar- and disc-shaped Bose and Fermi superfluids

Fundação de Amparo à Pesquisa do Estado de São Paulo (FAPESP)

Two-dimensional dipolar Bose-Einstein condensate bright and vortex solitons on a one-dimensional optical lattice

Fundação de Amparo à Pesquisa do Estado de São Paulo (FAPESP)

Dynamics of quasi-one-dimensional bright and vortex solitons of a dipolar Bose-Einstein condensate with repulsive atomic interaction

Fundação de Amparo à Pesquisa do Estado de São Paulo (FAPESP)

Gap solitons in a dipolar Bose-Einstein condensate on a three-dimensional optical lattice

Fundação de Amparo à Pesquisa do Estado de São Paulo (FAPESP)

Localization of a dipolar Bose-Einstein condensate in a bichromatic optical lattice

Fundação de Amparo à Pesquisa do Estado de São Paulo (FAPESP)

Self-trapping of a binary Bose-Einstein condensate induced by interspecies interaction

Fundação de Amparo à Pesquisa do Estado de São Paulo (FAPESP)

Dimensional reduction of a binary Bose-Einstein condensate in mixed dimensions

Conselho Nacional de Desenvolvimento Científico e Tecnológico (CNPq)

An extension of the linear delta expansion to superspace

We introduce and discuss the method of linear delta expansion for the calculation of effective potentials in superspace, by adopting the improved version of the super-Feynman rules. Calculations are carried out up to two loops and an expression for the optimized Kahler potential in the Wess-Zumino model is worked out.

Applicability of the linear delta expansion for the lambda phi(4) field theory at finite temperature in the symmetric and broken phases

Conselho Nacional de Desenvolvimento Científico e Tecnológico (CNPq)

Symmetry breaking in a localized interacting binary Bose-Einstein condensate in a bichromatic optical lattice

Fundação de Amparo à Pesquisa do Estado de São Paulo (FAPESP)

Linear delta expansion applied to the O'Raifeartaigh model

We reassess the method of the linear delta expansion for the calculation of effective potentials in superspace, by adopting the improved version of the super-Feynman rules in the framework of the O'Raifeartaigh model for spontaneous supersymmetry breaking. The effective potential is calculated using both the fastest apparent convergence and the principle of minimal sensitivity criteria and the consistency and efficacy of the method are checked in deriving the Coleman-Weinberg potential.

Self-trapping of a Fermi superfluid in a double-well potential in the Bose-Einstein-condensate-unitarity crossover

Fundação de Amparo à Pesquisa do Estado de São Paulo (FAPESP)

Localization of a Bose-Einstein-condensate vortex in a bichromatic optical lattice

Fundação de Amparo à Pesquisa do Estado de São Paulo (FAPESP)