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An empirical comparison of the performance of alternative option pricing models

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  • Rubio Irigoyen, Gonzalo
  • León, Angel
  • Ferreira García, María Eva
  • Gago, Mónica

Abstract

Published as an article in: Investigaciones Economicas, 2005, vol. 29, issue 3, pages 483-523.

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Bibliographic Info

Paper provided by University of the Basque Country - Department of Foundations of Economic Analysis II in its series DFAEII Working Papers with number 2002-04.

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Date of creation: Sep 2003
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Handle: RePEc:ehu:dfaeii:200204

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Postal: Dpto. de Fundamentos del Análisis Económico II, = Facultad de CC. Económicas y Empresariales, Universidad del País Vasco, Avda. Lehendakari Aguirre 83, 48015 Bilbao, Spain
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Keywords: option pricing; conditional volatility; SNN Nonparametric estimator;

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References

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  1. Ángel León & Javier Mencía & Enrique Sentana, 2005. "Parametric Properties Of Semi-Nonparametric Distributions, With Applications To Option Valuation," Working Papers, CEMFI wp2005_0509, CEMFI.
  2. Güth, W. & Ritzberger, K. & Damme, E.E.C. van, 2002. "On the Nash Bargaining Solution with Noise," Discussion Paper, Tilburg University, Center for Economic Research 2002-79, Tilburg University, Center for Economic Research.
  3. Yacine Aït-Sahalia & Andrew W. Lo, 1998. "Nonparametric Estimation of State-Price Densities Implicit in Financial Asset Prices," Journal of Finance, American Finance Association, American Finance Association, vol. 53(2), pages 499-547, 04.
  4. Torben G. Andersen & Luca Benzoni & Jesper Lund, 2002. "An Empirical Investigation of Continuous-Time Equity Return Models," Journal of Finance, American Finance Association, American Finance Association, vol. 57(3), pages 1239-1284, 06.
  5. Black, Fischer, 1976. "The pricing of commodity contracts," Journal of Financial Economics, Elsevier, Elsevier, vol. 3(1-2), pages 167-179.
  6. Chernov, Mikhail & Ghysels, Eric, 2000. "A study towards a unified approach to the joint estimation of objective and risk neutral measures for the purpose of options valuation," Journal of Financial Economics, Elsevier, Elsevier, vol. 56(3), pages 407-458, June.
  7. Ferreira García, María Eva & Gago, Mónica & Rubio Irigoyen, Gonzalo, 1999. "A Semiparametric Estimation of Liquidity Effects on Option Pricing," BILTOKI, Universidad del País Vasco - Departamento de Economía Aplicada III (Econometría y Estadística) 1999-08, Universidad del País Vasco - Departamento de Economía Aplicada III (Econometría y Estadística).
  8. Bates, David S., 2003. "Empirical option pricing: a retrospection," Journal of Econometrics, Elsevier, Elsevier, vol. 116(1-2), pages 387-404.
  9. Bates, David S, 1996. "Jumps and Stochastic Volatility: Exchange Rate Processes Implicit in Deutsche Mark Options," Review of Financial Studies, Society for Financial Studies, Society for Financial Studies, vol. 9(1), pages 69-107.
  10. Eric Ghysels & Pedro Santa-Clara & Rossen Valkanov, 2003. "There is a Risk-Return Tradeoff After All," CIRANO Working Papers, CIRANO 2003s-26, CIRANO.
  11. Pan, Jun, 2002. "The jump-risk premia implicit in options: evidence from an integrated time-series study," Journal of Financial Economics, Elsevier, Elsevier, vol. 63(1), pages 3-50, January.
  12. Bollerslev, Tim, 1986. "Generalized autoregressive conditional heteroskedasticity," Journal of Econometrics, Elsevier, Elsevier, vol. 31(3), pages 307-327, April.
  13. Jing-zhi Huang & Liuren Wu, 2004. "Specification Analysis of Option Pricing Models Based on Time-Changed Levy Processes," Econometric Society 2004 North American Winter Meetings, Econometric Society 405, Econometric Society.
  14. Darrell Duffie & Jun Pan & Kenneth Singleton, 1999. "Transform Analysis and Asset Pricing for Affine Jump-Diffusions," NBER Working Papers 7105, National Bureau of Economic Research, Inc.
  15. Heston, Steven L, 1993. "A Closed-Form Solution for Options with Stochastic Volatility with Applications to Bond and Currency Options," Review of Financial Studies, Society for Financial Studies, Society for Financial Studies, vol. 6(2), pages 327-43.
  16. Nicolas P. B. Bollen & Robert E. Whaley, 2004. "Does Net Buying Pressure Affect the Shape of Implied Volatility Functions?," Journal of Finance, American Finance Association, American Finance Association, vol. 59(2), pages 711-753, 04.
  17. Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 81(3), pages 637-54, May-June.
  18. Angel León & Juan Mora, 1999. "Modelling conditional heteroskedasticity: Application to the "IBEX-35" stock-return index," Spanish Economic Review, Springer, Springer, vol. 1(3), pages 215-238.
  19. Fiorentini, Gabriele & Leon, Angel & Rubio, Gonzalo, 2002. "Estimation and empirical performance of Heston's stochastic volatility model: the case of a thinly traded market," Journal of Empirical Finance, Elsevier, Elsevier, vol. 9(2), pages 225-255, March.
  20. Bates, David S., 2000. "Post-'87 crash fears in the S&P 500 futures option market," Journal of Econometrics, Elsevier, Elsevier, vol. 94(1-2), pages 181-238.
  21. Heston, Steven L & Nandi, Saikat, 2000. "A Closed-Form GARCH Option Valuation Model," Review of Financial Studies, Society for Financial Studies, Society for Financial Studies, vol. 13(3), pages 585-625.
  22. Jondeau, Eric & Rockinger, Michael, 2001. "Gram-Charlier densities," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 25(10), pages 1457-1483, October.
  23. Jarrow, Robert & Rudd, Andrew, 1982. "Approximate option valuation for arbitrary stochastic processes," Journal of Financial Economics, Elsevier, Elsevier, vol. 10(3), pages 347-369, November.
  24. Pena, Ignacio & Rubio, Gonzalo & Serna, Gregorio, 1999. "Why do we smile? On the determinants of the implied volatility function," Journal of Banking & Finance, Elsevier, Elsevier, vol. 23(8), pages 1151-1179, August.
  25. Gallant, A Ronald & Nychka, Douglas W, 1987. "Semi-nonparametric Maximum Likelihood Estimation," Econometrica, Econometric Society, Econometric Society, vol. 55(2), pages 363-90, March.
  26. Hull, John C & White, Alan D, 1987. " The Pricing of Options on Assets with Stochastic Volatilities," Journal of Finance, American Finance Association, American Finance Association, vol. 42(2), pages 281-300, June.
  27. David Backus & Silverio Foresi & Liuren Wu, 2002. "Accouting for Biases in Black-Scholes," Finance, EconWPA 0207008, EconWPA.
  28. René Garcia & Eric Ghysels & Éric Renault, 2004. "The Econometrics of Option Pricing," CIRANO Working Papers, CIRANO 2004s-04, CIRANO.
  29. Eraker, Bjorn & Johannes, Michael & Polson, Nicholas, 2002. "The Impact of Jumps in Volatility and Returns," Working Papers, Duke University, Department of Economics 02-18, Duke University, Department of Economics.
  30. Gurdip Bakshi & Nikunj Kapadia & Dilip Madan, 2003. "Stock Return Characteristics, Skew Laws, and the Differential Pricing of Individual Equity Options," Review of Financial Studies, Society for Financial Studies, Society for Financial Studies, vol. 16(1), pages 101-143.
  31. Longstaff, Francis A, 1995. "Option Pricing and the Martingale Restriction," Review of Financial Studies, Society for Financial Studies, Society for Financial Studies, vol. 8(4), pages 1091-1124.
  32. Bjørn Eraker, 2004. "Do Stock Prices and Volatility Jump? Reconciling Evidence from Spot and Option Prices," Journal of Finance, American Finance Association, American Finance Association, vol. 59(3), pages 1367-1404, 06.
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Cited by:
  1. Ryszard Kokoszczyński & Natalia Nehrebecka & Paweł Sakowski & Paweł Strawiński & Robert Ślepaczuk, 2010. "Option Pricing Models with HF Data – a Comparative Study. The Properties of Black Model with Different Volatility Measures," Working Papers, Faculty of Economic Sciences, University of Warsaw 2010-03, Faculty of Economic Sciences, University of Warsaw.

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