View article

This paper develops distribution-specific theoretical constraints on relative prices of out-of-the-money European call and put options that are also valid for American options on futures. The constraints can be used to identify which distributional hypotheses can and cannot explain observed moneyness biases. An application to S&P 500 futures options over 1983-1993 illustrates the inability of standard distributional hypotheses to explain observed moneyness biases--especially those observed following the stock market crash of 1987. Some distribution-specific extensions to exotic option pricing are also discussed.