The stable distribution is among the earliest distributions that have been
proposed for describing the returns of financial assets.  It was first
suggested by Benoit Mandelbrot [1], the same person after whom the
Mandelbrot set is named.  It's probably fair to say that Mandelbrot's work
launched the study of asset price distributions.  Since then, there have
been dozens of distributions proposed that have been argued to have better
properties.  From a modeling perspective, one of the disadvantages of the
stable distribution is that the variance is undefined (infinite) if alpha <
2, so it is not clear what it would mean to talk about the volatility of a
stable-distributed process.

[1] Mandelbrot, Benoit, "The Variation of Certain Speculative Prices," The
Journal of Business, Vol. 36, No. 4 (Oct. 1963), pp. 394-419.


On Thu, Nov 24, 2011 at 8:04 AM, msalese <massimo.salese@gmail.com> wrote:

> Hi guys, I think that you can use what distribution you want.
> Stable is one of that better fits the log returns (it's my opinion!)
> But you can have more info giving a look at
> http://www.mathestate.com/tools/Financial/map/Overview.html).
> If you prefer you can price with GARCH to better reproduce the smile
> effect.
> I'm a buyer side trader (risk taker), I price options only to create future
> scenarios and on that scenarios I plan the reaction.
>
>
> --
> View this message in context:
> http://r.789695.n4.nabble.com/Option-valuation-for-arbitrary-distribution-using-monte-carlo-simulation-tp4095718p4103714.html
> Sent from the Rmetrics mailing list archive at Nabble.com.
>
> _______________________________________________
> R-SIG-Finance@r-project.org mailing list
> https://stat.ethz.ch/mailman/listinfo/r-sig-finance
> -- Subscriber-posting only. If you want to post, subscribe first.
> -- Also note that this is not the r-help list where general R questions
> should go.
>



-- 
Matthew Clegg
matthewcleggphd@gmail.com

	[[alternative HTML version deleted]]

