Showing 111 - 120 of 128
This paper shows a relationship between bond pricing models and option pricing models with stochastic volatility. It exploits this relationship to find a new stochastic volatility model with a closed-form solution for European option prices. The model allows nonzero correlation between...
Persistent link: https://www.econbiz.de/10012790614
This paper explores the effect of extreme events or big jumps downwards and upwards on the jump-diffusion option pricing model of Merton (1976). It starts by obtaining a special case of the jump-diffusion model where there is a positive probability of a big jump downwards. Then, it obtains a new...
Persistent link: https://www.econbiz.de/10012770480
We examine the influence of industrial structure on the cross-sectional volatility and correlation structure of country index returns for 12 European countries between 1978 and 1992. We find that industrial structure explains very little of the cross-sectional difference in country return...
Persistent link: https://www.econbiz.de/10012785453
This paper investigates the structure of international stock returns in Europe and the U.S., and examines whether international capital markets are integrated. Using data on 6000 firms in the U.S. and twelve European countries from 1978 to 1990, we find evidence that countries share multiple...
Persistent link: https://www.econbiz.de/10012785454
Motivated by the literature on investment flows and optimal trading, we examine intraday predictability in the cross-section of stock returns. We find a striking pattern of return continuation at half-hour intervals that are exact multiples of a trading day, and this effect lasts for at least 40...
Persistent link: https://www.econbiz.de/10012716680
This paper develops an equilibrium model in which interest rates follow a discontinuous (generalized) gamma process. The gamma process has finite variation, takes an infinite number of quot;smallquot; jumps in every interval, and includes the Wiener process as a limiting case. The gamma interest...
Persistent link: https://www.econbiz.de/10012790610
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/10012738181
The Black-Scholes-Merton option valuation method involves deriving and solving a partial differential equation (PDE). But this method can generate multiple values for an option. We provide new solutions for the Cox-Ingersoll-Ross (CIR) term structure model, the constant elasticity of variance...
Persistent link: https://www.econbiz.de/10012715857
Point shaving is the practice by favored teams of attempting to win by less than the point spread to yield profits for gamblers who bet on the underdog. Consistent with point shaving, strong favorites are anomalously likely to win by less than the spread. To distinguish between innocent and...
Persistent link: https://www.econbiz.de/10012726434
This paper examines the ability of beta and size to explain cross-sectional variation in average returns in twelve European countries. We find that average stock returns are positively related to beta and negatively related to firm size. The beta premium is in part due to the fact that high beta...
Persistent link: https://www.econbiz.de/10012775075