Benzoni, Luca; Collin-Dufresne, Pierre; Goldstein, Robert S. - Federal Reserve Bank of Chicago - 2010
The 1987 market crash was associated with a dramatic and permanent steepening of the implied volatility curve for … the updating of agents' beliefs about the likelihood of future jumps, which produces a market crash and a permanent shift … in option prices. Consumption and dividends remain smooth, and the model is consistent with salient features of …
