A Simple Option-Pricing Formula

Posted: 22 Dec 2001

See all articles by Robert Savickas

Robert Savickas

George Washington University - School of Business - Department of Finance

Abstract

A simple option-pricing formula based on the Weibull distribution is introduced. The simplicity of the algebraic form and ease of implementation are comparable to those of Black-Scholes. Application to S&P500 options shows that the pricing biases present in the Black-Scholes model are eliminated. Prices produced by the presented model generally lie within or close to the bid-ask spread. For long term options (over one year), 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 existing models.

Keywords: option-pricing, S&P500, Weibull distribution, Black-Scholes, skewness

JEL Classification: G13

Suggested Citation

Savickas, Robert, A Simple Option-Pricing Formula. Available at SSRN: https://ssrn.com/abstract=289439

Robert Savickas (Contact Author)

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

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