Investigation of non-Gaussian effects in the Brazilian option market

Author(s)

Sosa-Correa, William O. ^[1] ; Ramos, Antonio M. T. ^[2] ; Vasconcelos, Giovani L. ^{[1, 3]}

Affiliation

^[1] Univ Fed Pernambuco, Dept Fis, Lab Fis Teor & Computac, BR-50670901 Recife, PE - Brazil

^[2] Natl Inst Space Res INPE, BR-12227010 Sao Jose Do Campos, SP - Brazil

^[3] Univ Fed Parana, Dept Fis, Curitiba, Parana - Brazil

• Document type: Journal article
• Source: PHYSICA A-STATISTICAL MECHANICS AND ITS APPLICATIONS; v. 496, p. 525-539, APR 15 2018.
• Web of Science Citations: 2

Abstract

An empirical study of the Brazilian option market is presented in light of three option pricing models, namely the Black-Scholes model, the exponential model, and a model based on a power law distribution, the so-called q-Gaussian distribution or Tsallis distribution. It is found that the q-Gaussian model performs better than the Black-Scholes model in about one third of the option chains analyzed. But among these cases, the exponential model performs better than the q-Gaussian model in 75% of the time. The superiority of the exponential model over the q-Gaussian model is particularly impressive for options close to the expiration date, where its success rate rises above ninety percent. (C) 2018 Elsevier B.V. All rights reserved. (AU)

• FAPESP's process: 14/14229-2 - Non-linear and chaotic dynamics with spatial distribution and their characterization by using the Complex Network approach
• Grantee: Antônio Mário de Torres Ramos
• Support Opportunities: Scholarships in Brazil - Post-Doctoral