Empirical performance of alternative option pricing models

Article Abstract:

Substantial progress has been made in developing more realistic option pricing models. Empirically, however, it is not known whether and by how much each generalization improves option pricing and hedging. We fill this gap by first deriving an option model that allows volatility, interest rates and jumps to be stochastic. Using S&P 500 options, we examine several alternative models from three perspectives: (1) internal consistency of implied parameters/volatility with relevant time-series data, (2) out-of-sample pricing, and (3) hedging. Overall, incorporating stochastic volatility and jumps is important for pricing and internal consistency. But for hedging, modeling stochastic volatility alone yields the best performance. (Reprinted by permission of the publisher.)

Models, Options (Finance), Pricing

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Does the Specialist Matter? Differential Execution Costs and Intersecurity Subsidization on the New York Stock Exchange

Article Abstract:

Differential execution costs across and within specialist firms of the New York Stock Exchange are discussed, using Glosten and Harris's microstructure model. Topics include the institutional background of NYSE specialist firms; testable hypotheses concerning effective spreads per share, order processing costs per share, and trading frequency; estimation of the spread and its components; possible explanations for different execution costs among specialist firms; and specialist pricing in relation to intersecurity subsidy.

Economic aspects, Finance, Stock-exchange, Stock exchanges

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Price discovery without trading: evidence from the Nasdaq preopening

Article Abstract:

The authors examine activities of market makers prior to daily opening of stock markets. Topics include inside quotes, price discovery, and financial literature.

United States, Analysis, Evaluation, Stocks, Stock prices, NASDAQ Market System

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