New option valuation method outperforms traditional approach during market volatility.
A new method for valuing options, called the implied pricing kernel approach, was tested using data from the KOSPI 200 options market. This approach estimates model parameters differently than the traditional method, and it performed slightly better for out-of-the-money calls and significantly better for out-of-the-money puts, especially during market turbulence. This suggests that the implied pricing kernel approach could be more useful for valuing options in uncertain or speculative markets.