Testing Option Pricing Models
AbstractThis paper discusses the commonly used methods for testing option pricing models, including the Black-Scholes, constant elasticity of variance, stochastic volatility, and jump-diffusion models. Since options are derivative assets, the central empirical issue is whether the distributions implicit in option prices are consistent with the time series properties of the underlying asset prices. Three relevant aspects of consistency are discussed, corresponding to whether time series-based inferences and option prices agree with respect to volatility, changes in volatility, and higher moments. The paper surveys the extensive empirical literature on stock options, options on stock indexes and stock index futures, and options on currencies and currency futures.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 5129.
Date of creation: May 1995
Date of revision:
Publication status: published as in G.S. Maddale and C.R. Rao, editers, Handbook of Statistics: Statistical Methods in Finance, Vol. 14, 1996, pp. 567-611.
Contact details of provider:
Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Web page: http://www.nber.org
More information through EDIRC
Find related papers by JEL classification:
- G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Bakshi, Gurdip S. & Zhiwu, Chen, 1997. "An alternative valuation model for contingent claims," Journal of Financial Economics, Elsevier, Elsevier, vol. 44(1), pages 123-165, April.
- Malz, Allan M., 1996. "Using option prices to estimate realignment probabilities in the European Monetary System: the case of sterling-mark," Journal of International Money and Finance, Elsevier, Elsevier, vol. 15(5), pages 717-748, October.
- Gurdip S. Bakshi & Zhiwu Chen, . "An Alternative Model for Contingent Claims," Research in Financial Economics 9504, Ohio State University.
- Emilio Barucci & Paul Malliavin & Maria Elvira Mancino & Roberto Renï¿½ & Anton Thalmaier, 2003. "The Price-Volatility Feedback Rate: An Implementable Mathematical Indicator of Market Stability," Mathematical Finance, Wiley Blackwell, Wiley Blackwell, vol. 13(1), pages 17-35.
- Ghysels, E. & Harvey, A. & Renault, E., 1995.
Papers, Toulouse - GREMAQ
95.400, Toulouse - GREMAQ.
- GHYSELS, Eric & HARVEY, Andrew & RENAULT, Eric, 1995. "Stochastic Volatility," CORE Discussion Papers, UniversitÃ© catholique de Louvain, Center for Operations Research and Econometrics (CORE) 1995069, UniversitÃ© catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Eric Ghysels & Andrew Harvey & Éric Renault, 1995. "Stochastic Volatility," CIRANO Working Papers 95s-49, CIRANO.
- Ghysels, E. & Harvey, A. & Renault, E., 1996. "Stochastic Volatility," Cahiers de recherche, Centre interuniversitaire de recherche en Ã©conomie quantitative, CIREQ 9613, Centre interuniversitaire de recherche en Ã©conomie quantitative, CIREQ.
- Ghysels, E. & Harvey, A. & Renault, E., 1996. "Stochastic Volatility," Cahiers de recherche, Universite de Montreal, Departement de sciences economiques 9613, Universite de Montreal, Departement de sciences economiques.
- Kyriakos Chourdakis, 2000. "Stochastic Volatility and Jumps Driven by Continuous Time Markov Chains," Working Papers 430, Queen Mary, University of London, School of Economics and Finance.
- Kozarski, R., 2013. "Pricing and hedging in the VIX derivative market," Open Access publications from Tilburg University urn:nbn:nl:ui:12-5905577, Tilburg University.
- Stephen Satchell & Soosung Hwang, 1999.
"Market Risk and the Concept of Fundamental Volatility: Measuring Volatility Across Asset and Derivative Markets and Testing for the Impact of Derivatives Markets on Financial Markets,"
Working Papers, Warwick Business School, Finance Group
wp99-16, Warwick Business School, Finance Group.
- Hwang, Soosung & Satchell, Stephen E., 2000. "Market risk and the concept of fundamental volatility: Measuring volatility across asset and derivative markets and testing for the impact of derivatives markets on financial markets," Journal of Banking & Finance, Elsevier, vol. 24(5), pages 759-785, May.
- Kyriakos Chourdakis, 2002. "Continuous Time Regime Switching Models and Applications in Estimating Processes with Stochastic Volatility and Jumps," Working Papers 464, Queen Mary, University of London, School of Economics and Finance.
- Alessandro Beber & Luca Erzegovesi, 1999. "Distribuzioni di probabilitÃ implicite nei prezzi delle opzioni," Alea Tech Reports, Department of Computer and Management Sciences, University of Trento, Italy 008, Department of Computer and Management Sciences, University of Trento, Italy, revised 14 Jun 2008.
- Cem Aysoy & Ercan Balaban, 1996. "The Term Structure of Volatility in the Turkish Foreign Exchange : Implications for Option Pricing and Hedging Decisions," Discussion Papers, Research and Monetary Policy Department, Central Bank of the Republic of Turkey 9613, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
- Jacquier, Eric & Jarrow, Robert, 2000. "Bayesian analysis of contingent claim model error," Journal of Econometrics, Elsevier, Elsevier, vol. 94(1-2), pages 145-180.
- Duan, Jin-Chuan & Zhang, Hua, 2001. "Pricing Hang Seng Index options around the Asian financial crisis - A GARCH approach," Journal of Banking & Finance, Elsevier, vol. 25(11), pages 1989-2014, November.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().
If references are entirely missing, you can add them using this form.