Showing 1 - 10 of 32
We provide results for the valuation of European style contingent claims for a large class of specifications of the underlying asset returns. Our valuation results obtain in a discrete time, infinite state-space setup using the no-arbitrage principle and an equivalent martingale measure. Our...
Persistent link: https://www.econbiz.de/10004976982
Equity risk measured by beta is of great interest to both academics and practitioners. Existing estimates of beta use historical returns. Many studies have found option-implied volatility to be a strong predictor of future realized volatility. We .nd that option-implied volatility and skewness...
Persistent link: https://www.econbiz.de/10004976983
Standard empirical investigations of jump dynamics in returns and volatility are fairly complicated due to the presence of latent continuous-time factors. We present a new discrete-time framework that combines heteroskedastic processes with rich specifications of jumps in returns and volatility....
Persistent link: https://www.econbiz.de/10004976985
Characterizing asset return dynamics using volatility models is an important part of empirical finance. The existing literature favors some rather complex volatility specifications whose relative performance is usually assessed through their likelihood based on a time-series of asset returns....
Persistent link: https://www.econbiz.de/10005100917
Which loss function should be used when estimating and evaluating option valuation models? Many different functions have been suggested, but no standard has emerged. We emphasize that consistency in the choice of loss functions is crucial. First, for any given model, the loss function used in...
Persistent link: https://www.econbiz.de/10005100937
Which loss function should be used when estimating and evaluating option pricing models? Many different fucntions have been suggested, but no standard has emerged. We do not promote a partidular function, but instead emphasize that consistency in the choice of loss functions is crucial. First,...
Persistent link: https://www.econbiz.de/10005100978
This paper presents a new model for the valuation of European options. In our model, the volatility of returns consists of two components. One of these components is a long-run component, and it can be modeled as fully persistent. The other component is short-run and has a zero mean. Our model...
Persistent link: https://www.econbiz.de/10005101069
There is extensive empirical evidence that index option prices systematically differ from Black-Scholes prices. Out-of-the-money put prices (and in-the-money call prices) are relatively high compared to the Black-Scholes price. Motivated by these empirical facts, we develop a new discrete time...
Persistent link: https://www.econbiz.de/10005101071
In this paper, we introduce a new approach for volatility modeling in discrete and continuous time. We follow the stochastic volatility literature by assuming that the variance is a function of a state variable. However, instead of assuming that the loading function is ad hoc (e.g., exponential...
Persistent link: https://www.econbiz.de/10005100570
In this paper, we consider testing marginal normal distributional assumptions. More precisely, we propose tests based on moment conditions implied by normality. These moment conditions are known as the Stein (1972) equations. They coincide with the first class of moment conditions derived by...
Persistent link: https://www.econbiz.de/10005100582