An equation for determining the fair market value of a European-style option when the price movement on the underlying asset does not resemble a normal distribution. The gamma pricing model is intended to price options where the underlying asset has a distribution that is either long-tailed or skewed, where dramatic market moves occur with greater frequency than would be predicted by a normal distribution of returns.

While the Black-Scholes option pricing model is the best known, it does not provide accurate pricing results under all situations. In particular, the Black-Scholes model assumes that the underlying instrument has returns that are normally distributed. As a result, the Black-Scholes will misprice options on instruments that do not trade based on a normal distribution. Many alternative options pricing methods have been developed with the goal of providing more accurate pricing for real-world applications such as the Gamma Pricing Model. Generally speaking, the Gamma Pricing Model measures the gamma, which is how much fast the delta changes with respect to small changes in the underlying asset's price.

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… THE VARIANCE GAMMA PROCESS AND OPTION PRICING … There are three option pricing formulas nested in the option pricing formula (25 … The data employed was the 691 daily observations of log spot price relatives covering the period from January 1992 to September …

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… THE VARIANCE GAMMA PROCESS AND OPTION PRICING … There are three option pricing formulas nested in the option pricing formula (25 … The data employed was the 691 daily observations of log spot price relatives covering the period from January 1992 to September …

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… THE VARIANCE GAMMA PROCESS AND OPTION PRICING … There are three option pricing formulas nested in the option pricing formula (25 … The data employed was the 691 daily observations of log spot price relatives covering the period from January 1992 to September …

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… THE VARIANCE GAMMA PROCESS AND OPTION PRICING … There are three option pricing formulas nested in the option pricing formula (25 … The data employed was the 691 daily observations of log spot price relatives covering the period from January 1992 to September …

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… THE VARIANCE GAMMA PROCESS AND OPTION PRICING … There are three option pricing formulas nested in the option pricing formula (25 … The data employed was the 691 daily observations of log spot price relatives covering the period from January 1992 to September …

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… THE VARIANCE GAMMA PROCESS AND OPTION PRICING … There are three option pricing formulas nested in the option pricing formula (25 … The data employed was the 691 daily observations of log spot price relatives covering the period from January 1992 to September …

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… THE VARIANCE GAMMA PROCESS AND OPTION PRICING … There are three option pricing formulas nested in the option pricing formula (25 … The data employed was the 691 daily observations of log spot price relatives covering the period from January 1992 to September …

www.worldscientific.com [PDF]

… THE VARIANCE GAMMA PROCESS AND OPTION PRICING … There are three option pricing formulas nested in the option pricing formula (25 … The data employed was the 691 daily observations of log spot price relatives covering the period from January 1992 to September …

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