Nonsimultaneity and Futures Option Pricing: Simulation and Empirical Evidence
AbstractEmpirical tests of option pricing models are joint tests of the 'correctness' of the model, the efficiency of the market and the simultaneity of price observations. Some degree of nonsimultaeity can be expected in all but the most liquid markets and is therefore evident in many non-US markets. Simulation results indicate that nonsimultaneity is potentially a significant problem in empirical tests of futures option pricing models. Empirical results using Australian data show that a five-minute window for matching transactions does not remove the nonsimultaneity bias for near-the-money and out-of-the money options. A more accurate matching may therefore be required. The nonsimultaneity bias is effectively removed if a five-minute window is employed for in-the-money options.
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Bibliographic InfoPaper provided by Monash University, Department of Econometrics and Business Statistics in its series Monash Econometrics and Business Statistics Working Papers with number 13/02.
Length: 39 pages
Date of creation: Dec 2002
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Find related papers by JEL classification:
- G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
This paper has been announced in the following NEP Reports:
- NEP-ALL-2003-01-27 (All new papers)
- NEP-CFN-2003-01-27 (Corporate Finance)
- NEP-CMP-2003-01-27 (Computational Economics)
- NEP-FIN-2003-01-27 (Finance)
- NEP-FMK-2003-01-27 (Financial Markets)
- NEP-RMG-2003-01-27 (Risk Management)
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