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A Skewness-Adjusted Binomial Model for Pricing Futures Options—The Importance of the Mean and Carrying-Cost Parameters
Department of Finance, Xavier University, Cincinnati, USA
Department of Economics, Xavier University, Cincinnati, USA
Department of Finance, Xavier University, Cincinnati, USA
- 1 Department of Finance, Xavier University, Cincinnati, USA
- 2 Department of Economics, Xavier University, Cincinnati, USA
- 3 Department of Finance, Xavier University, Cincinnati, USA
Journal of Mathematical Finance·Volume 02 (2012)·Pages 105–120·Published 28 February 2012·DOI10.4236/jmf.2012.21013
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Abstract
In this paper, we extend the Johnson, Pawlukiwicz, and Mehta [1] skewness-adjusted binomial model to the pricing of futures options and examine in some detail the asymptotic properties of the skewness model as it applies to futures and spot options. The resulting skewness-adjusted futures options model shows that for a large number of subperiods, the price of futures options depends not only on the volatility and mean but also on the risk-free rate, asset-yield, and other carrying-cost parameters when skewness exists.
KeywordsOptions PricingBlack-ScholesSkewness
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