Option pricing for Informed Traders

TL;DR

This paper extends traditional option pricing models to incorporate empirical market phenomena like non-Gaussian returns, long-range dependence, and asymmetric information, providing a more comprehensive theoretical framework.

Contribution

It introduces an advanced option pricing model that accounts for empirical market features and information asymmetries, bridging gaps in existing theories.

Findings

Enhanced model explains non-Gaussian return distributions

Captures volatility clustering and long-range dependence

Addresses effects of asymmetric information on option prices

Abstract

In this paper we extend the theory of option pricing to take into account and explain the empirical evidence for asset prices such as non-Gaussian returns, long-range dependence, volatility clustering, non-Gaussian copula dependence, as well as theoretical issues such as asymmetric information and the presence of limited arbitrage opportunities