Aufgrund von Vorbereitungen auf eine neue Version von KOPS, können kommenden Montag und Dienstag keine Publikationen eingereicht werden. (Due to preparations for a new version of KOPS, no publications can be submitted next Monday and Tuesday.)
Type of Publication: | Working Paper/Technical Report |
URI (citable link): | http://nbn-resolving.de/urn:nbn:de:bsz:352-opus-54372 |
Author: | Jackwerth, Jens Carsten; Rubinstein, Mark |
Year of publication: | 2001 |
Series: | Working paper, London Business School ; 2001 |
Summary: |
How do stock prices evolve over time? The standard assumption of geometric Brownian motion, questionable as it has been right along, is even more doubtful in light of the stock market crash of 1987 and the subsequent prices of U.S. index options. With the development of rich and deep markets in these options, it is now possible to use options prices to make inferences about the risk-neutral stochastic process governing the underlying index. We compare the ability of models including Black-Scholes, naive volatility smile predictions of traders, constant elasticity of variance, displaced diffusion, jump diffusion, stochastic volatility, and implied binomial trees to explain otherwise identical observed option prices that differ by strike prices, times-toexpiration, or times. The latter amounts to examining predictions of future implied volatilities. Certain naive predictive models used by traders seem to perform best, although some academic models are not far behind. We find that the better performing models all incorporate the negative correlation between index level and volatility. Further improvements to the models seem to require predicting the future at-the-money implied volatility. However, an efficient markets result makes these forecasts difficult, and improvements to the option pricing models might then be limited.
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Subject (DDC): | 330 Economics |
Link to License: | In Copyright |
JACKWERTH, Jens Carsten, Mark RUBINSTEIN, 2001. Recovering Stochastic Processes from Option Prices
@techreport{Jackwerth2001Recov-12214, series={Working paper, London Business School}, title={Recovering Stochastic Processes from Option Prices}, year={2001}, number={2001}, author={Jackwerth, Jens Carsten and Rubinstein, Mark} }
RecoveringStochasticProcessesfromOptionPrices2001.pdf | 543 |