Jumps and Stochastic Volatility: Exchange Rate Processes Implicit in thePHLX Deutschemark Options / David S. Bates.

Format:

Book

Author/Creator:

Bates, David S.

Contributor:

National Bureau of Economic Research.

Series:

Working Paper Series (National Bureau of Economic Research) no. w4596.

NBER working paper series no. w4596

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Jumps and Stochastic Volatility

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1993.

Summary:

An efficient method is developed for pricing American options on combination stochastic volatility/jump-diffusion processes when jump risk and volatility risk are systematic and nondiversifiable, thereby nesting two major option pricing models. The parameters implicit in PHLX-traded Deutschemark options of the stochastic volatility/jump- diffusion model and various submodels are estimated over 1984-91, and are tested for consistency with the $/DM futures process and the implicit volatility sample path. The parameters implicit in options are found to be inconsistent with the time series properties of implicit volatilities, but qualitatively consistent with log- differenced futures prices. No economically significant implicit expectations of exchange rate jumps were found in full-sample estimation, which is consistent with the reduced leptokurtosis of $/DM weekly exchange rate changes over 1984-91 relative to earlier periods.

Notes:

Print version record

December 1993.