A Skewness-Adjusted Binomial Model for Pricing Futures Options—The Importance of the Mean and Carrying-Cost Parameters

Johnson, R. Stafford; Sen, Amit; Balyeat, Brian

doi:10.4236/jmf.2012.21013

Cited by 5 publications

(4 citation statements)

References 13 publications

(5 reference statements)

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“…Most option models assume a symmetric distribution for the asset returns, but Johnson, Pawlukiewicz, and Mehta (1997) and Johnson, Sen, and Balyeat (2012) derive a binomial option pricing model that allows for a skewed distribution. Based on their more complex model, the effect of skewness on an option's value can be assessed by considering the probability that a drug is a success, q:…”

Section: A Real Options Model Of Drug Randd Investment When Benefits mentioning

confidence: 99%

How excluding some benefits from value assessment of new drugs impacts innovation

Cook

Golec

2017

Health Economics

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Payers often assess the benefits of new drugs relative to costs for reimbursement purposes, but they frequently exclude some drugs' option-related benefits, reducing their reimbursement chances, and making them less attractive R&D investments. We develop and test a real options model of R&D investment that shows that excluding option-related benefits heightens drug developers' incentives to avoid high-risk (volatile) R&D investments and instead encourages them to focus on "safer" (positively skewed) investments. Our model and empirical results could partly explain the decline in the number of risky new molecular entities.

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Section: A Real Options Model Of Drug Randd Investment When Benefits mentioning

confidence: 99%

How excluding some benefits from value assessment of new drugs impacts innovation

Cook

Golec

2017

Health Economics

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“…Skewness plays an important role in statistical analyses in almost all disciplines, and especially in finance. Johnson, Sen and Balyeat [7] applied a skewness adjusted binomial model to futures options pricing and derived the asymptotic skewness model properties. Their results showed that the futures options price, in the presence of skewness, depends not only on mean and standard deviation DOI: 10.4236/ojs.2019.95039 602 Open Journal of Statistics (sd), but other parameters as well.…”

Section: Introductionmentioning

confidence: 99%

New Measures of Skewness of a Probability Distribution

Singh¹,

Gewali²,

Khatiwada³

2019

OJS

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Symmetry of the underlying probability density plays an important role in statistical inference, since the sampling distribution of the sample mean for a given sample size is more likely to be approximately normal for a symmetric distribution than for an asymmetric one. In this article, two new measures of skewness are proposed and the confidence intervals for true skewness are obtained via Monte Carlo simulation experiments. One advantage of the two proposed skewness measures over the standard measures of skewness is that the proposed measures of skewness take values inside the range (−1, +1).

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“…respectively. This is a standard procedure (Ingersoll (1987)) and is widely applied as similar expressions can be found in Johnson et al (1997) for non-standardized skewness, Barberis and Xiong (2009), Ebert and Strack (2009) and Johnson et al (2012). The corresponding upside probabilitiesp t are derived from our estimates of Γ t , where we usep t as the remaining degree of freedom to implement the connection to the skewness of the return distribution, such thatp t =…”

mentioning

confidence: 99%

Taring All Investors with the Same Brush? Evidence for Heterogeneity in Individual Preferences from a Maximum Likelihood Approach

2015

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note that parts of this paper were written when Sven Jakusch was working at Ernst & Young Wirtschaftspruefungsgesellschaft GmbH, however, any views, statements or opinions expressed in this paper are solely those of the authors and not related to Ernst & Young. 1 Heterogeneity in Risk Preferences-Evidence from a Maximum Likelihood Approach Heterogeneity in Risk Preferences-Evidence from a Maximum Likelihood Approach Zhu (2006) and Kaustia (2010)). Other studies find that individual investors systematically miss the merits of diversification (Kumar and Goetzmann (2008)), are attracted by stocks that can be characterized by low expected returns and highly positive skewness (Mitton and Vorkink (2007), Kumar and Goetzmann (2008), Kumar (2009b)), tend to more familiar investments (Barber and Odean (2008), Keloharju et al. (2012)), trade more after an increase in stock market prices (Cohen et al. (2002), Dhar and Kumar (2002), Hvidkjaer (2006)) and are succumb to various cognitive traps that negatively affect their performance (e.g. DeBondt (1998), Barber and Odean (2000) and Barber et al. (2009)). Empirical evidence suggests that these trading patterns, if emerging concurrently, have the potential to affect cross-sectional dependence in returns (see e.g. Grinblatt and Han (2005b) and Han and Kumar (2010) for the impact of trading pattern and Kumar (2007) for evidence on portfolio choice), variations in market volatility and prices (

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A Skewness-Adjusted Binomial Model for Pricing Futures Options—The Importance of the Mean and Carrying-Cost Parameters

Cited by 5 publications

References 13 publications

How excluding some benefits from value assessment of new drugs impacts innovation

How excluding some benefits from value assessment of new drugs impacts innovation

New Measures of Skewness of a Probability Distribution

Taring All Investors with the Same Brush? Evidence for Heterogeneity in Individual Preferences from a Maximum Likelihood Approach

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