IDEAS home Printed from https://ideas.repec.org/p/ags/aaea22/343544.html
   My bibliography  Save this paper

Option Pricing Revisited: The Role of Price Volatility and Dynamics

Author

Listed:
  • Chavas, Jean-Paul
  • Li, Jian
  • Wang, Linjie

Abstract

No abstract is available for this item.

Suggested Citation

  • Chavas, Jean-Paul & Li, Jian & Wang, Linjie, 2024. "Option Pricing Revisited: The Role of Price Volatility and Dynamics," 2024 Annual Meeting, July 28-30, New Orleans, LA 343544, Agricultural and Applied Economics Association.
    • Handle: RePEc:ags:aaea22:343544
    DOI: 10.22004/ag.econ.343544
    as

    Download full text from publisher

    File URL: https://ageconsearch.umn.edu/record/343544/files/27905.pdf
    Download Restriction: no
    File URL: https://libkey.io/10.22004/ag.econ.343544?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Shu-Ling Chen & John D. Jackson & Hyeongwoo Kim & Pramesti Resiandini, 2014. "What Drives Commodity Prices?," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 96(5), pages 1455-1468.
    2. Robert J. Shiller, 2015. "Irrational Exuberance," Economics Books, Princeton University Press, edition 3, number 10421.
    3. Whaley, Robert E, 1986. "Valuation of American Futures Options: Theory and Empirical Tests," Journal of Finance, American Finance Association, vol. 41(1), pages 127-150, March.
    4. Schwert, G. William, 2003. "Anomalies and market efficiency," Handbook of the Economics of Finance, in: G.M. Constantinides & M. Harris & R. M. Stulz (ed.), Handbook of the Economics of Finance, edition 1, volume 1, chapter 15, pages 939-974, Elsevier.
    5. Baruník, Jozef & Čech, František, 2021. "Measurement of common risks in tails: A panel quantile regression model for financial returns," Journal of Financial Markets, Elsevier, vol. 52(C).
    6. Markus K. Brunnermeier & Lasse Heje Pedersen, 2009. "Market Liquidity and Funding Liquidity," The Review of Financial Studies, Society for Financial Studies, vol. 22(6), pages 2201-2238, June.
    7. In Joon Kim & Sol Kim, 2005. "Is it important to consider the jump component for pricing and hedging short‐term options?," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 25(10), pages 989-1009, October.
    8. Jinji Hao & Jin E. Zhang, 2013. "GARCH Option Pricing Models, the CBOE VIX, and Variance Risk Premium," Journal of Financial Econometrics, Oxford University Press, vol. 11(3), pages 556-580, June.
    9. Hasbrouck, Joel, 1993. "Assessing the Quality of a Security Market: A New Approach to Transaction-Cost Measurement," The Review of Financial Studies, Society for Financial Studies, vol. 6(1), pages 191-212.
    10. David S. Bates, 2022. "Empirical Option Pricing Models," Annual Review of Financial Economics, Annual Reviews, vol. 14(1), pages 369-389, November.
    11. Cars Hommes & Anita Kopányi-Peuker & Joep Sonnemans, 2021. "Bubbles, crashes and information contagion in large-group asset market experiments," Experimental Economics, Springer;Economic Science Association, vol. 24(2), pages 414-433, June.
    12. Peter Christoffersen & Bruno Feunou & Yoontae Jeon & Chayawat Ornthanalai, 2021. "Time-Varying Crash Risk Embedded in Index Options: The Role of Stock Market Liquidity [Does realized skewness predict the cross-section of equity returns?]," Review of Finance, European Finance Association, vol. 25(4), pages 1261-1298.
    13. Robert C. Merton, 2005. "Theory of rational option pricing," World Scientific Book Chapters, in: Sudipto Bhattacharya & George M Constantinides (ed.), Theory Of Valuation, chapter 8, pages 229-288, World Scientific Publishing Co. Pte. Ltd..
    14. Giovanni Barone Adesi & Robert F. Engle & Loriano Mancini, 2014. "A GARCH Option Pricing Model with Filtered Historical Simulation," Palgrave Macmillan Books, in: Giovanni Barone Adesi (ed.), Simulating Security Returns: A Filtered Historical Simulation Approach, chapter 4, pages 66-108, Palgrave Macmillan.
    15. Fama, Eugene F, 1970. "Efficient Capital Markets: A Review of Theory and Empirical Work," Journal of Finance, American Finance Association, vol. 25(2), pages 383-417, May.
    16. Jian Li & Jean-Paul Chavas & Xiaoli L. Etienne & Chongguang Li, 2017. "Commodity price bubbles and macroeconomics: evidence from the Chinese agricultural markets," Agricultural Economics, International Association of Agricultural Economists, vol. 48(6), pages 755-768, November.
    17. Hull, John C & White, Alan D, 1987. "The Pricing of Options on Assets with Stochastic Volatilities," Journal of Finance, American Finance Association, vol. 42(2), pages 281-300, June.
    18. Koenker, Roger & Xiao, Zhijie, 2006. "Quantile Autoregression," Journal of the American Statistical Association, American Statistical Association, vol. 101, pages 980-990, September.
    19. Xinyue He & Teresa Serra, 2022. "Are price limits cooling off agricultural futures markets?," American Journal of Agricultural Economics, John Wiley & Sons, vol. 104(5), pages 1724-1746, October.
    20. Peter Fortune, 1996. "Anomalies in option pricing: the Black-Scholes model revisited," New England Economic Review, Federal Reserve Bank of Boston, issue Mar, pages 17-40.
    21. Jensen, Mads Vestergaard & Pedersen, Lasse Heje, 2016. "Early option exercise: Never say never," Journal of Financial Economics, Elsevier, vol. 121(2), pages 278-299.
    22. Heston, Steven L & Nandi, Saikat, 2000. "A Closed-Form GARCH Option Valuation Model," The Review of Financial Studies, Society for Financial Studies, vol. 13(3), pages 585-625.
    23. Isengildina-Massa, Olga & Irwin, Scott H. & Good, Darrel L., 2010. "Quantile Regression Estimates of Confidence Intervals for WASDE Price Forecasts," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 35(3), pages 1-23, December.
    24. Christoffersen, Peter & Jacobs, Kris & Ornthanalai, Chayawat, 2012. "Dynamic jump intensities and risk premiums: Evidence from S&P500 returns and options," Journal of Financial Economics, Elsevier, vol. 106(3), pages 447-472.
    25. Bige Kahraman & Heather Tookes, 2020. "Margin Trading and Comovement During Crises [Connected stocks]," Review of Finance, European Finance Association, vol. 24(4), pages 813-846.
    26. Peter H. Gruber & Claudio Tebaldi & Fabio Trojani, 2021. "The Price of the Smile and Variance Risk Premia," Management Science, INFORMS, vol. 67(7), pages 4056-4074, July.
    27. Stuart D. Frank & Scott H. Irwin & George H. Pfeiffer & Charles E. Curtis, 1989. "Further Evidence on Soybean Marketing Strategies: The Role of Options," Review of Agricultural Economics, Agricultural and Applied Economics Association, vol. 11(2), pages 213-219.
    28. Robert F. Stambaugh & Jianfeng Yu & Yu Yuan, 2015. "Arbitrage Asymmetry and the Idiosyncratic Volatility Puzzle," Journal of Finance, American Finance Association, vol. 70(5), pages 1903-1948, October.
    29. Nicholas Barberis & Lawrence J. Jin & Baolian Wang, 2021. "Prospect Theory and Stock Market Anomalies," Journal of Finance, American Finance Association, vol. 76(5), pages 2639-2687, October.
    30. Dabin Wang & William G. Tomek, 2007. "Commodity Prices and Unit Root Tests," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 89(4), pages 873-889.
    31. Sushil Bikhchandani & Sunil Sharma, 2001. "Herd Behavior in Financial Markets," IMF Staff Papers, Palgrave Macmillan, vol. 47(3), pages 1-1.
    32. Christoffersen, Peter & Heston, Steve & Jacobs, Kris, 2006. "Option valuation with conditional skewness," Journal of Econometrics, Elsevier, vol. 131(1-2), pages 253-284.
    33. Ornthanalai, Chayawat, 2014. "Lévy jump risk: Evidence from options and returns," Journal of Financial Economics, Elsevier, vol. 112(1), pages 69-90.
    34. Jian Li & Jean‐Paul Chavas, 2023. "A dynamic analysis of the distribution of commodity futures and spot prices," American Journal of Agricultural Economics, John Wiley & Sons, vol. 105(1), pages 122-143, January.
    35. Georges Dionne, 2013. "Risk Management: History, Definition, and Critique," Risk Management and Insurance Review, American Risk and Insurance Association, vol. 16(2), pages 147-166, September.
    36. Roger Koenker & Zhijie Xiao, 2004. "Unit Root Quantile Autoregression Inference," Journal of the American Statistical Association, American Statistical Association, vol. 99, pages 775-787, January.
    37. Jeff Fleming & Chris Kirby & Barbara Ostdiek, 2006. "Stochastic Volatility, Trading Volume, and the Daily Flow of Information," The Journal of Business, University of Chicago Press, vol. 79(3), pages 1551-1590, May.
    38. Jondeau, Eric & Rockinger, Michael, 2003. "Conditional volatility, skewness, and kurtosis: existence, persistence, and comovements," Journal of Economic Dynamics and Control, Elsevier, vol. 27(10), pages 1699-1737, August.
    39. Barberis, Nicholas & Greenwood, Robin & Jin, Lawrence & Shleifer, Andrei, 2018. "Extrapolation and bubbles," Journal of Financial Economics, Elsevier, vol. 129(2), pages 203-227.
    40. Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-654, May-June.
    41. Urcola, Hernan A. & Irwin, Scott H., 2011. "Are Agricultural Options Overpriced?," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 36(1), pages 1-15, April.
    42. Andrew M. McKenzie & Michael R. Thomsen & Michael K. Adjemian, 2022. "Characterizing implied volatility functions from agricultural options markets," American Journal of Agricultural Economics, John Wiley & Sons, vol. 104(5), pages 1605-1624, October.
    43. Oleg Rytchkov, 2014. "Asset Pricing with Dynamic Margin Constraints," Journal of Finance, American Finance Association, vol. 69(1), pages 405-452, February.
    44. George A. Akerlof & Robert J. Shiller, 2010. "Animal Spirits: How Human Psychology Drives the Economy, and Why It Matters for Global Capitalism," Economics Books, Princeton University Press, edition 1, number 9163.
    45. repec:bla:jfinan:v:59:y:2004:i:2:p:755-793 is not listed on IDEAS
    46. Irwin, Scott H. & Pelly, Robert A. & Zulauf, Carl R., 1989. "An Investigation of Pricing Models for Live Cattle and Feeder Cattle Options," Staff Papers 232393, Virginia Polytechnic Institute and State University, Department of Agricultural and Applied Economics.
    47. Bakshi, Gurdip & Cao, Charles & Chen, Zhiwu, 1997. "Empirical Performance of Alternative Option Pricing Models," Journal of Finance, American Finance Association, vol. 52(5), pages 2003-2049, December.
    48. Etienne, Xiaoli L. & Irwin, Scott H. & Garcia, Philip, 2014. "Bubbles in food commodity markets: Four decades of evidence," Journal of International Money and Finance, Elsevier, vol. 42(C), pages 129-155.
    49. Filip Žikeš & Jozef Baruník, 2015. "Semi-parametric Conditional Quantile Models for Financial Returns and Realized Volatility," Journal of Financial Econometrics, Society for Financial Econometrics, vol. 14(1), pages 185-226.
    50. Hua, Jian & Manzan, Sebastiano, 2013. "Forecasting the return distribution using high-frequency volatility measures," Journal of Banking & Finance, Elsevier, vol. 37(11), pages 4381-4403.
    51. Chowdhry, Bhagwan & Nanda, Vikram, 1998. "Leverage and Market Stability: The Role of Margin Rules and Price Limits," The Journal of Business, University of Chicago Press, vol. 71(2), pages 179-210, April.
    52. Luciano Gutierrez, 2013. "Speculative bubbles in agricultural commodity markets-super- †," European Review of Agricultural Economics, Oxford University Press and the European Agricultural and Applied Economics Publications Foundation, vol. 40(2), pages 217-238, March.
    53. Bates, David S., 2003. "Empirical option pricing: a retrospection," Journal of Econometrics, Elsevier, vol. 116(1-2), pages 387-404.
    54. Jin‐Chuan Duan, 1995. "The Garch Option Pricing Model," Mathematical Finance, Wiley Blackwell, vol. 5(1), pages 13-32, January.
    55. MacBeth, James D & Merville, Larry J, 1979. "An Empirical Examination of the Black-Scholes Call Option Pricing Model," Journal of Finance, American Finance Association, vol. 34(5), pages 1173-1186, December.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Chavas, Jean-Paul & Li, Jian & Wang, Linjie, 2024. "Option pricing revisited: The role of price volatility and dynamics," Journal of Commodity Markets, Elsevier, vol. 33(C).
    2. Rombouts, Jeroen V.K. & Stentoft, Lars, 2014. "Bayesian option pricing using mixed normal heteroskedasticity models," Computational Statistics & Data Analysis, Elsevier, vol. 76(C), pages 588-605.
    3. Rombouts, Jeroen V.K. & Stentoft, Lars, 2015. "Option pricing with asymmetric heteroskedastic normal mixture models," International Journal of Forecasting, Elsevier, vol. 31(3), pages 635-650.
    4. Papantonis, Ioannis, 2016. "Volatility risk premium implications of GARCH option pricing models," Economic Modelling, Elsevier, vol. 58(C), pages 104-115.
    5. Ballestra, Luca Vincenzo & D’Innocenzo, Enzo & Guizzardi, Andrea, 2024. "A new bivariate approach for modeling the interaction between stock volatility and interest rate: An application to S&P500 returns and options," European Journal of Operational Research, Elsevier, vol. 314(3), pages 1185-1194.
    6. Henri Bertholon & Alain Monfort & Fulvio Pegoraro, 2006. "Pricing and Inference with Mixtures of Conditionally Normal Processes," Working Papers 2006-28, Center for Research in Economics and Statistics.
    7. Lim, Terence & Lo, Andrew W. & Merton, Robert C. & Scholes, Myron S., 2006. "The Derivatives Sourcebook," Foundations and Trends(R) in Finance, now publishers, vol. 1(5–6), pages 365-572, April.
    8. Rachid Belhachemi, 2024. "Option Valuation with Conditional Heteroskedastic Hidden Truncation Models," Computational Economics, Springer;Society for Computational Economics, vol. 63(6), pages 2585-2601, June.
    9. Zhu, Ke & Ling, Shiqing, 2015. "Model-based pricing for financial derivatives," Journal of Econometrics, Elsevier, vol. 187(2), pages 447-457.
    10. Sol Kim, 2021. "Portfolio of Volatility Smiles versus Volatility Surface: Implications for pricing and hedging options," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 41(7), pages 1154-1176, July.
    11. Xinglin Yang & Peng Wang, 2018. "VIX futures pricing with conditional skewness," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 38(9), pages 1126-1151, September.
    12. Augustyniak, Maciej & Badescu, Alexandru & Bégin, Jean-François, 2023. "A discrete-time hedging framework with multiple factors and fat tails: On what matters," Journal of Econometrics, Elsevier, vol. 232(2), pages 416-444.
    13. Wenjun Zhang & Jin E. Zhang, 2020. "GARCH Option Pricing Models and the Variance Risk Premium," JRFM, MDPI, vol. 13(3), pages 1-21, March.
    14. Sharif Mozumder & Bakhtear Talukdar & M. Humayun Kabir & Bingxin Li, 2024. "Non-linear volatility with normal inverse Gaussian innovations: ad-hoc analytic option pricing," Review of Quantitative Finance and Accounting, Springer, vol. 62(1), pages 97-133, January.
    15. René Garcia & Eric Ghysels & Eric Renault, 2004. "The Econometrics of Option Pricing," CIRANO Working Papers 2004s-04, CIRANO.
    16. Stylianos Perrakis, 2022. "From innovation to obfuscation: continuous time finance fifty years later," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 36(3), pages 369-401, September.
    17. Christoffersen, Peter & Heston, Steven & Jacobs, Kris, 2010. "Option Anomalies and the Pricing Kernel," Working Papers 11-17, University of Pennsylvania, Wharton School, Weiss Center.
    18. Huang, Hung-Hsi & Lin, Shin-Hung & Wang, Chiu-Ping, 2019. "Reasonable evaluation of VIX options for the Taiwan stock index," The North American Journal of Economics and Finance, Elsevier, vol. 48(C), pages 111-130.
    19. Byun, Suk Joon & Jeon, Byoung Hyun & Min, Byungsun & Yoon, Sun-Joong, 2015. "The role of the variance premium in Jump-GARCH option pricing models," Journal of Banking & Finance, Elsevier, vol. 59(C), pages 38-56.
    20. Sol Kim & In Jung Song, 2021. "The traders' rule and long‐term options," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 41(3), pages 406-436, March.

    More about this item

    Keywords

    Agricultural Finance; Risk And Uncertainty; Demand And Price Analysis;
    All these keywords.

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ags:aaea22:343544. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: AgEcon Search (email available below). General contact details of provider: https://edirc.repec.org/data/aaeaaea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.