Hi,
I am trying to implement the Jarrow-Rudd formula for valuing
options with adjustment terms for skewness and kurtosis.
The Jarrow-Rudd formula in its simplest variation, gives the
value of the option C (F) as
C (F) = C (A) +λ1Q3 +λ2Q4,
where Q3 and Q4 involve some term of derivative of St
at strike price K.
I am not clear how to work out this derivative in actual
conditions. Their paper on approximate valuation of option pricing does not
give any indication of this and I do not have access to their other paper on
testing of the formula with market prices ( this paper is part of the book on
option pricing edited by M Brenner.
Does anyone have an
idea as to how to decode this term of derivative?
Thanks for your assistance in advance.
Nilakantan
N.S.Nilakantan
Cell No. 9820680741
Prof. N.S.Nilakantan
Associate Professor- Quantitative Methods
K J Somaiya Institute of Management Studies and Research,
(An Institution of Excellence of SOMAIYA VIDYAVIHAR)
Vidyavihar, Mumbai 400 077.
Phone : (022)6728 3050 /3000/3044 Fax : (022) 2102 7219
Mobile 91-9820680741
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