NO.PZ2023100703000121
问题如下:
A risk committee of the board of company ABC is discussing the difference between pricing deep out-of-the money call options on ABC stock and pricing deep out-of-the-money call options on the USD/GBP foreign exchange (FX) rate using the Black-Scholes-Merton model. The committee considers pricing each of these two options based on two distinct probability distributions of underlying asset prices at the option expiration date: a lognormal probability distribution, and an implied risk-neutral probability distribution obtained from the volatility smile for each aforementioned option of the same maturity and the same moneyness. If the implied risk-neutral probability distribution is used instead of the lognormal distribution, which of the following is correct?选项:
A.The price of the option on ABC stock would be relatively high and the price of the option on USD/GBP FX rate would be relatively low compared to those computed from the lognormal counterparts.
B.The price of the option on ABC stock would be relatively low and the price of the option on USD/GBP FX rate would be relatively high compared to those computed from the lognormal counterparts.
C.The price of the option on ABC stock would be relatively low and the price of the option on USD/GBP FX rate would be relatively low compared to those computed from the lognormal counterparts.
D.The price of the option on ABC stock would be relatively high and the price of the option on USD/GBP FX rate would be relatively high compared to those computed from the lognormal counterparts.
解释:
B is correct. The implied distribution of the underlying equity prices derived using the general volatility smile of equity options has a heavier left tail and a less heavy right tail than a lognormal distribution of underlying prices. Therefore, using the implied distribution of prices causes deep-out-of-the-money call options on the underlying to be priced relatively low compared with using the lognormal distribution. The implied distribution of underlying foreign currency prices derived using the general volatility smile of foreign currency options has heavier tails than a lognormal distribution of underlying prices. Therefore, using the implied distribution of prices causes deep-out-of-the-money call options on the underlying to be priced relatively high compared with using the lognormal distribution.对于equity option,risk neutral和lognormal两种方法是怎么比较的,怎么看出deep out of money call的stock在risk neutral下是尾部更heavy