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Persistent link: https://www.econbiz.de/10001185975
A number of studies on the S&P 500 index options market claim that the no arbitrage assumption cannot be rejected for this market because either the martingale restriction defined in Longstaff (1995) cannot be rejected by the data, or, even when it is rejected, a large proportion of the...
Persistent link: https://www.econbiz.de/10013108919
Britten-Jones and Neuberger (2000) derived a model-free implied volatility under the diffusion assumption. In this article, we extend their model-free implied volatility to asset price processes with jumps and develop a simple method for implementing it using observed option prices. In addition,...
Persistent link: https://www.econbiz.de/10013086617
In informationally efficient financial markets, option prices and this implied volatility should immediately be adjusted to new information that arrives along with a jump in underlying's return, whereas gradual changes in implied volatility would indicate market inefficiency. Using...
Persistent link: https://www.econbiz.de/10012898071
I use five separate measures of deviation from Put-Call Parity of options on a stock without splits or dividends as separate negative measures for market efficiency. I rely upon the theory of trading volume as a function of short sales costs, etc., and that of market efficiency as a function of...
Persistent link: https://www.econbiz.de/10012899307
This paper documents four findings in the option market based on two stages of decimalization where switching control and treatment stocks is possible. First, uninformed traders are more cost sensitive than informed traders. Second, the paper proves and verifies that when uninformed traders are...
Persistent link: https://www.econbiz.de/10012935866
In this notes, I argue and show that the so-called Efficient Markets Hypothesis (EMH) is no less than a false prophecy, the Black-Scholes-Merton (BSM) formula - a perfect rendition of EMH - no more than a parlor trick, and risk-neutral pricing models - generalisations of BSM - severe...
Persistent link: https://www.econbiz.de/10012937483
The most basic and important object for any company trading energy commodities is a so-called Price Forward Curve, or PFC, providing prices in a fine granularity for a future period of time. Clearly, the PFC must be free of arbitrage with respect to the relevant set of forward prices at all...
Persistent link: https://www.econbiz.de/10013002561
In an arbitrage-free economy with non-zero bid-ask spreads the existence of payoffs whose price is lower than the price of a dominated payoff cannot be discarded in general. However, when the former price corresponds to trivial portfolios which involve buying or selling one unit of the basis...
Persistent link: https://www.econbiz.de/10013011553
In this article, we will discuss a few enhancements for SABR model implementation, first we will introduce a fast SABR calibration with the standard Hagan's formula by reducing the number of model parameters; then we will address the negative probability at the low strike wing with the Hagan's...
Persistent link: https://www.econbiz.de/10013053276