Abstract

RODRIGUEZ AGUILAR, Román  and  CRUZ AKE, Salvador. Alpha-stable distributions and valuation of exchange rate options. Contad. Adm [online]. 2013, vol.58, n.3, pp.149-172. ISSN 0186-1042.

This paper aims to present the valuation of options using the Black-Scholes method assuming α-stable distributions as an alternative option valuation in the Mexican market. The use of α-stable distributions for modelling financial series allows to overcome the classical valuation main weakness which assumes normality, by capturing the presence of heavy tails and asymmetry in financial time series. One of the main results is the price differential between the two models and the effect of alpha and beta parameters on prices; to show the difference valuation is made of a call option and a put option for the peso-dollar exchange rate. Likewise, basic sensitivity measurements of options (delta, gamma, and rho) were made and the effect of the stability parameter (α) was made on the implied volatility of options assuming the α-stable price as the market price.

Keywords : alpha stable distributions; options valuation; heavy tailed data.

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