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How Does Systematic Risk Impact Stocks? A Study On the French Financial Market

Hayette, Gatfaoui - EconWPA - 2004

From the CAC40 French stock index, we induce the implied market factor’s level through the inversion of a closed form pricing formula for European calls on the CAC40. For this purpose, we assume that the CAC40 index is a disturbed observation of the actual market factor, the market factor’s...

Persistent link: https://www.econbiz.de/10005561708

Accouting for Biases in Black-Scholes

Backus, David; Foresi, Silverio; Wu, Liuren - EconWPA - 2002

moneyness, a result we use to infer skewness and kurtosis from volatility smiles. Evidence suggests that both kurtosis in …Prices of currency options commonly differ from the Black-Scholes formula along two dimensions: implied volatilities … vary by strike price (volatility smiles) and maturity (implied volatility of atthemoney options increases, on average …

Persistent link: https://www.econbiz.de/10005134642

Term Structure of Interest Rates, Yield Curve Residuals, and the Consistent Pricing of Interest Rates and Interest Rate Derivatives

Heidari, Massoud; Wu, Liuren - EconWPA - 2002

Dynamic term structure models (DTSMs) price interest rate derivatives based on the model implied fair values of the yield curve, ignoring any pricing residuals on the yield curve that are either from model approximations or market imperfections. In contrast, option pricing in practice often...

Persistent link: https://www.econbiz.de/10005134665

Options on a Stock with Market-Dependent Volatility

Chalupa, J. - EconWPA - 1997

A market is considered whose index has strongly price-dependent local volatility. A tractable parametrization of the volatility is formulated, and option valuation of a stock with two-factor dynamics is investigated. One factor is the market index; when the second factor is uncorrelated with the...

Persistent link: https://www.econbiz.de/10005134815