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Information-time based futures pricing

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  • Yen, Simon
  • Wang, Jai Jen
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    Abstract

    This study follows Clark [P.K. Clark, A subordinated stochastic process model with finite variance for speculative prices, Econometrica 41 (1973) 135–155] and Chang, Chang and Lim [C.W. Chang, S.K. Chang, K.G. Lim, Information-time option pricing: Theory and empirical evidence, Journal of Financial Economics 48 (1998) 211–242] to subordinate an information-time based directing process into calendar-time based parent processes. A closed-form futures pricing formula is derived after taking into account the information-time setting and the stochasticity of the spot price, interest rate, and convenience yield. According to the empirical results on the TAIEX and TFETX data from 1998/7/21 to 2003/12/31, the information-time based model performs better than its calendar-time based counterpart and the cost of carry model, especially when the information arrival intensity estimates become larger.

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    Bibliographic Info

    Article provided by Elsevier in its journal Physica A: Statistical Mechanics and its Applications.

    Volume (Year): 388 (2009)
    Issue (Month): 18 ()
    Pages: 3826-3836

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    Handle: RePEc:eee:phsmap:v:388:y:2009:i:18:p:3826-3836

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    Web page: http://www.journals.elsevier.com/physica-a-statistical-mechpplications/

    Related research

    Keywords: The cost of carry model; Information time; Intertemporal futures pricing;

    References

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