In a highly publicized example, a marketing and refining subsidiary of AG Metallgesellschaft controlled short term forward positions reportedly equivalent to 160 million barrels of oil, 60 times the daily output of Kuwait. Presumably, the short term positions were taken to hedge oil contracts to...

A number of papers have investigated the pricing of options on traded assets when the interest rate or the volatility of the underlying is assumed to be stochastic. This article extends the work by using the binomial technology to price options where it is assumed that, in addition to the...

Univariate procedures for valuing contingent payoffs for a non-constant volatility process via a recombining tree were developed by Nelson and Ramaswamy (RFS, 1990). Their results have been extended to the bivariate case for a subset of diffusions by, among others, Kishimoto (JF, 1989), Boyle,...

We develop a straightforward procedure to price derivatives by a bivariate tree when the underlying process is a jump-diffusion. Probabilities and jump sizes are derived by matching higher order moments or cumulants. Comparisons with other published results are given along with convergence...

We investigate quot;Jump Memoryquot; using an extensive data base of short-term Samp;P 500 Index options. Jump memory refers to the attenuation of the jump intensity and magnitude parameters following a jump event. Behavioral and rational explanations for this phenomenon are posited. The pricing...

The methodology for determining the statistical significance of the impact of a certain event (stock split, corporate restructuring, change in regulation, etc.) on the unsystematic volatility of asset returns is developed. The measures of such an impact and corresponding test statistics are...

Econometricians often emphasize that the use of a larger information set results in better parameter estimates and stronger hypotheses tests. The use of information on the stochastic behavior of the volatility of asset returns results in the formulation of more powerful parametric tests of the...

Because the publication of quot;Advances in Futures and Options Researchquot; has been discontinued, a revised version of this paper was published in the Journal of Risk. This paper examines the ability of the jump-diffusion models to explain systematic deviations in implicit distributions from...

This article develops a method for valuing contingent payoffs for a non-constant volatility process via a simple recombining binomial tree. The direct application of the technology provides a way to price, for example, American calls or puts governed by a stock price process with stochastic...

This paper uses a bivariate binomial options pricing technique to value the prepayment and default options in a fixed-rate mortgage. The American style options are dependent on two stochastic variables: (1) house price, (2) one year spot rate. The paper uses the standard lognormal process for...