Showing 1 - 10 of 339
As is well known, the classic Black­Scholes option pricing model assumes that returns follow Brownian motion. It is widely recognized that return processes differ from this benchmark in at least three important ways. First, asset prices jump, leading to non­normal return innovations. Second,...
Persistent link: https://www.econbiz.de/10005134892
We propose a direct and robust method for quantifying the variance risk premium on financial assets. We theoretically and numerically show that the risk-neutral expected value of the return variance, also known as the variance swap rate, is well approximated by the value of a particular...
Persistent link: https://www.econbiz.de/10005413197
This article studies the relative investment performance of several stock-valuation measures. The first is mispricing based on the valuation model developed by Bakshe and Chen (1998)and extended by Dong (1998) (hereafter, the BCD model). The BCD model relates, in closed form, a stock's fair...
Persistent link: https://www.econbiz.de/10005561689
This paper provides a model for valuing stocks that takes into account the stochastic processes for earnings and interest rates. Our analysis differs from past research of this type in being applicable to stocks that have a positive probability of zero or negative earnings. By avoiding the...
Persistent link: https://www.econbiz.de/10005561702
return and volatility equations. When using the GARCH (1,1) specification only for the return equation and the Modified …-GARCH (1,1) specification for both the return and volatility equations, findings indicate that the day of the week effect is …
Persistent link: https://www.econbiz.de/10005413108
We study option market design by providing a theoretical motivation and comprehensive empirical analysis of two fundamentally different option market structures, the Eurex derivatives exchange and Euwax, the world’s largest market for bank-issued options. These markets exist side-by- side,...
Persistent link: https://www.econbiz.de/10005134941
In this paper, we compare option contracts from a traditional derivatives exchange to bank-issued options, also referred to as covered warrants, whose markets have grown rapidly around the world in recent years. While bank-issued option markets and traditional derivatives exchanges exhibit...
Persistent link: https://www.econbiz.de/10005413164
The U.S. agency mortgage backed securities (MBS) market is deep and highly liquid, yet modeling MBS is extremely challenging. This paper applies market participants' desired requirements for a good pricing model to MBS pricing models provided by six of the top MBS dealers. We find that five out...
Persistent link: https://www.econbiz.de/10005561622
aim at calibrating a stochastic volatility jump diffusion model to the whole market volatility surface at any given time …
Persistent link: https://www.econbiz.de/10005076950
-estimate market spreads but, again, Fan and Sundaresan has a better performance. We find rating, maturity and asset volatility effects …
Persistent link: https://www.econbiz.de/10005076981