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Article: Empirical performance of alternative option pricing models

TitleEmpirical performance of alternative option pricing models
Authors
Issue Date1997
Citation
Journal of Finance, 1997, v. 52, n. 5, p. 2003-2049 How to Cite?
AbstractSubstantial progress has been made in developing more realistic option pricing models. Empirically, however, it is not known whether and by how much each generalization improves option pricing and hedging. We fill this gap by first deriving an option model that allows volatility, interest rates and jumps to be stochastic. Using S&P 500 options, we examine several alternative models from three perspectives: (1) internal consistency of implied parameters/volatility with relevant time-series data, (2) out-of-sample pricing, and (3) hedging. Overall, incorporating stochastic volatility and jumps is important for pricing and internal consistency. But for hedging, modeling stochastic volatility alone yields the best performance.
Persistent Identifierhttp://hdl.handle.net/10722/212768
ISSN
2015 Impact Factor: 5.105
2015 SCImago Journal Rankings: 14.546

 

DC FieldValueLanguage
dc.contributor.authorBakshi, Gurdip-
dc.contributor.authorCharles, Cao-
dc.contributor.authorChen, Zhiwu-
dc.date.accessioned2015-07-28T04:04:57Z-
dc.date.available2015-07-28T04:04:57Z-
dc.date.issued1997-
dc.identifier.citationJournal of Finance, 1997, v. 52, n. 5, p. 2003-2049-
dc.identifier.issn0022-1082-
dc.identifier.urihttp://hdl.handle.net/10722/212768-
dc.description.abstractSubstantial progress has been made in developing more realistic option pricing models. Empirically, however, it is not known whether and by how much each generalization improves option pricing and hedging. We fill this gap by first deriving an option model that allows volatility, interest rates and jumps to be stochastic. Using S&P 500 options, we examine several alternative models from three perspectives: (1) internal consistency of implied parameters/volatility with relevant time-series data, (2) out-of-sample pricing, and (3) hedging. Overall, incorporating stochastic volatility and jumps is important for pricing and internal consistency. But for hedging, modeling stochastic volatility alone yields the best performance.-
dc.languageeng-
dc.relation.ispartofJournal of Finance-
dc.titleEmpirical performance of alternative option pricing models-
dc.typeArticle-
dc.description.natureLink_to_subscribed_fulltext-
dc.identifier.scopuseid_2-s2.0-0040517321-
dc.identifier.volume52-
dc.identifier.issue5-
dc.identifier.spage2003-
dc.identifier.epage2049-

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