New Option Valuation Approach Outperforms Traditional Models in Market Performance.
The study compares different ways to value options in the KOSPI200 market. They looked at models based on option prices, implied pricing kernels, and parametric pricing kernels. By using options data to estimate parameters, the models performed better than when using only underlying returns data. The parametric pricing kernel with a Chebyshev polynomial form was the most effective method overall. The Black-Scholes model did well for in-the-money options, while the GARCH model was better for out-of-the-money options.