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Corrado and Su (1996) European Option Prices

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Corrado and Su (1996) European Option Prices



Compute European put and call option prices using the Corrado and Su (1996) model.

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This method explicitly allows for excess skewness and kurtosis in an expanded Black-Scholes option pricing formula.

The approach adapts a Gram-Charlier series expansions of the standard normal density function to yield an option price formula that is the sum of a Black–Scholes option price plus adjustment terms for nonnormal skewness and kurtosis (Corrado and Su, 1997).

For skewness = 0 and kurtosis = 3, the Corrado-Su option prices are equal to the prices obtained using the Black and Scholes (1973) model.

Corrado, C.J., and Su T. Skewness and kurtosis in S&P 500 Index returns implied by option prices. Financial Research 19:175–92, 1996.

Corrado, C.J., and Su T. Implied volatility skews and stock return skewness and kurtosis implied by stock option prices. European Journal of Finance 3:73–85, 1997.

Hull, J.C., "Options, Futures, and Other Derivatives", Prentice Hall, 5th edition, 2003.

Luenberger, D.G., "Investment Science", Oxford Press, 1998.

MATLAB release MATLAB 7.11 (R2010b)
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Comments and Ratings (2)
04 May 2016 William Klubinski  
06 Mar 2016 William Klubinski

There is an error in Corrado's hermite polynomials, which are incomplete and should start with: Hermite(x)=(-1)^n...

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