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A Bayesian semiparametric approach to pricing the S&P 500 index options
Kacperczyk, Marcin; Damien, Paul; Walker, Stephen - Econometric Society - 2004
Several studies incorporating estimated volatilities into option pricing formulas have appeared in the literature. However, the models described in these studies tend to perform quite poorly in out-of-sample tests. In particular, significant departures from the observed prices can be seen for...
Persistent link: https://www.econbiz.de/10005063606
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Prognoses for a Non-Predictable Discounted Commodity Price Process
Wright, Brian D.; Bobenrieth; Eugenio S. A. - Econometric Society - 2004
We consider the behavior of the price of a continuously stored commodity, for which discounted price is a non-constant martingale, and thus not-predictable. We prove that the discounted price realization is within any given neighborhood of zero, with any given probability less than 1, beyond a...
Persistent link: https://www.econbiz.de/10005699619
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Specification Analysis of Option Pricing Models Based on Time-Changed Levy Processes
Huang, Jing-zhi; Wu, Liuren - Econometric Society - 2004
stochastic volatility, and (iii) the specification of the volatility process itself. We then consider a variety of model … movement and whether stochastic volatility comes from jump or diffusion. We find that, to capture the behavior of the S&P 500 …
Persistent link: https://www.econbiz.de/10005699646
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Pricing Derivatives on Two Lé}vy-driven Stocks
Mordecki, Ernesto; Fajardo, José - Econometric Society - 2004
The aim of this work is to study the pricing problem for derivatives depending on two stocks driven by a bidimensional Lévy process. The main idea is to apply Girsanov's Theorem for Lévy processes, in order to reduce the posed problem to the pricing of a one Lévy driven stock in an auxiliary...
Persistent link: https://www.econbiz.de/10005699662
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Testing Asset Pricing Model with Coskweness
Urga, Giovanni; Adesi, Giovanni Barone; Gagliardini, Patrick - Econometric Society - 2004
In this paper we investigate portfolio coskewness using a quadratic market model as return generating process. It is shown that portfolios of small (large) firms have negative (positive) coskewness with market. An asset pricing model including coskewness is tested through the restrictions it...
Persistent link: https://www.econbiz.de/10005328981
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Stochastic Volatility, Mean Drift, and Jumps in the Short Rate Diffusion: Sources of Steepness, Level and Curvature
Lund, Jesper; Andersen, Torben G.; Benzoni, Luca - Econometric Society - 2004
-factor settings with latent variables that are readily interpreted as the conditional mean and volatility of the interest rate, and … perform illustrative calibrations for the yield curve. We select a three-factor specification featuring stochastic volatility ….S. short rate dynamics. The inclusion of the stochastic volatility factor is critical, whereas the stochastic mean offers a …
Persistent link: https://www.econbiz.de/10005063579
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Modeling Yield-Factor Volatility
Smith, Daniel R.; Parignon, Christophe - Econometric Society - 2004
and curvature in the yield curve. We model the volatility dynamics in these yield factors using both GARCH and level … effects and find that both are needed to adequately model yield-factor volatility. The level effect is routinely used when … modeling volatility in short-term interest rates and we find that the level of the short-rate is useful in modeling the …
Persistent link: https://www.econbiz.de/10005702565
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Generalized Two-Step Maximum Likelihood Estimation of Structural Vector Autoregressive Models partially identified with Short-Run Restrictions
Jang, Kyungho - Econometric Society - 2004
This paper presents a generalized two-step maximum likelihood estimation method for partially identified vector autoregressive models. We suggest a likelihood ratio test for over-identification in a sub-system and derive the asymptotics for impulse responses and forecast-error variance...
Persistent link: https://www.econbiz.de/10005702745
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The Risk-Neutral Measure and Option Pricing under Log-Stable Uncertainty
McCulloch, J. Huston - Econometric Society - 2004
The fact that the expected payoffs on assets and call options are infinite under most log-stable distributions led Paul Samuelson and Robert Merton to conjecture that assets and derivatives could not be reasonably priced under these distributions, despite their many other attractive features....
Persistent link: https://www.econbiz.de/10005328962
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Evaluating Incentive Options
Xiong, Wei; Sircar, Ronnie - Econometric Society - 2004
We provide an analytical and flexible framework to evaluate incentive options. Our model not only considers vesting periods and trading and hedging restrictions on the holders, but also specifically includes provisions of reloading and resetting to capture the fact that firms tend to grant more...
Persistent link: https://www.econbiz.de/10005329033