Higher order asymptotic option valuation for non-Gaussian dependent returns (Q866646)

The Black and Scholes model assumes the Gaussanity and the independence of stock log returns. Empirical studies report that they are not Gaussian nor independent. In this paper, dropping these two assumptions, the option pricing problems using statistical series expansion for the price process of an underlying asset are discussed. The authors derive the Edgeworth expansion for the stock log return via extracting dynamic structure of time series. Using this result, we investigate the influences of the non-Gaussianity and the dependency of log return processes for option pricing. Numerical studies show some interesting features of them.