The authors investigate a new basic model for asset pricing, the hyperbolic model, which allows an almost perfect statistical fit of stock return data. After a detailed introduction into the theory they use secondary market data to compare the hyperbolic model to the classical Black-Scholes model. The authors study implicit volatilities, the smile effect, and pricing performance. Exploiting the full power of the hyperbolic model, they construct an option value process from a statistical point of view by estimating the implicit risk-neutral density function from option data. Finally, the authors present some new value-at-risk calculations leading to new perspectives to cope with model risk. Copyright 1998 by University of Chicago Press.
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Article provided by University of Chicago Press in its journal Journal of Business.
Volume (Year): 71 (1998) Issue (Month): 3 (July) Pages: 371-405 Download reference. The following formats are available: HTML
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