The Pietra term structures of financial assets |
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Authors: | Iddo Eliazar |
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Institution: | Department of Technology Management, Holon Institute of Technology, P.O. Box 305, Holon 58102, Israel |
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Abstract: | This paper explores an elemental connection between call options-the most commonly tradable financial derivatives, implied volatility term structures-critical “market information” emanating from call-option prices, and the Pietra index-a quantitative economic measure of societal egalitarianism. Our study: (i) unveils an intrinsic “Pietra structure” of call-option prices; (ii) introduces the notion of the “Pietra term structures” of financial assets; (iii) describes the probabilistic meaning of the Pietra term structures; (iv) establishes an explicit nonlinear one-to-one mapping between the Pietra term structures and the implied volatility term structures of financial assets. The results presented in this paper provide a deep insight into the econophysics of call options and implied volatility term structures. |
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Keywords: | Call options Risk-neutral option pricing Risk-neutral probability Merton-Black-Scholes option pricing formula Implied volatility term structure Lorenz curve Gini index Pietra index Pietra term structure |
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