The hidden martingale restriction in Gram-Charlier option prices
journal contribution
posted on 2007-06-01, 00:00authored byCharles Corrado
A hidden martingale restriction is developed for option pricing models based on Gram-Charlier expansions of the normal density function. The restriction is hidden behind a reduction in parameter space for the Gram-Charlier expansion coefficients. The resulting restriction is invisible in the option price.