A Simple Option Pricing Formula (New Version)

30 Pages Posted: 10 May 2001

See all articles by Robert Savickas

Robert Savickas

George Washington University - School of Business - Department of Finance

Date Written: March 27, 2001


A simple option-pricing formula based on the Weibull distribution of the underlying price at maturity is introduced. The simplicity of the algebraic form and ease of the model's implementation are comparable to those of Black-Scholes. Application to the S&P 500 index options shows that the pricing biases present in the Black-Scholes model are eliminated when the Weibull formula is used. Option prices produced by the presented model generally lie within or close to the actual bid-ask spread for all strike prices. When long term options (with maturities of more than one year) are priced, the Weibull formula exhibits significantly higher precision than the Black-Scholes formula does. While a rigorous comparison of all available models is necessary, the simplicity and precision of the proposed model are its main advantages over the pre-existing models.

JEL Classification: G13

Suggested Citation

Savickas, Robert, A Simple Option Pricing Formula (New Version) (March 27, 2001). Available at SSRN: https://ssrn.com/abstract=265854 or http://dx.doi.org/10.2139/ssrn.265854

Robert Savickas (Contact Author)

George Washington University - School of Business - Department of Finance ( email )

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