The crash of '87: was it expected? The evidence from options markets

Article Abstract:

Transactions prices of S&P 500 futures options over 1985-1987 are examined for evidence of expectations prior to October 1987 of an impending stock market crash. First, it is shown that out-of-the-money puts became unusually expensive during the year preceding the crash. Second, a model is derived for pricing American options on jump-diffusion processes with systematic jump risk. The jump-diffusion parameters implicit in options prices indicate that a crash was expected and that implicit distributions were negatively skewed during October 1986 to August 1987. Both approaches indicate no strong crash fears during the 2 months immediately preceding the crash. (Reprinted by permission of the publisher.)

Causes of, Futures market, Futures markets, Stock Market Crash, 1987

---

Testing the expectations hypothesis on the term structure of volatilities in foreign exchange options

Article Abstract:

This article tests the expectations hypothesis in the term structure of volatilities in foreign exchange options. In particular, it addresses whether long-dated volatility quotes are consistent with expected future short-dated volatility quotes, assuming rational expectations. For options observed daily from December 1, 1989 to August 31, 1992 on dollar exchange rates against the pound, mark, yen, and Swiss franc, we are unable to reject the expectations hypothesis in the great majority of cases. The current spread between long- and short-dated volatility rates proves to be a significant predictor of the direction of future short-dated rates. (Reprinted by permission of the publisher.)

Foreign exchange market

---

Similar abstracts:

• Abstracts: Asset pricing in partially segmented markets: evidence from the Finnish market. A theory of trading volume
• Abstracts: The picture in 2015. The prospects for privatization
• Abstracts: The cost of deferring a consideration. City action
• Abstracts: On the optimal hedge of a nontraded cash position. The quality delivery option in Treasury bond futures contracts
• Abstracts: Thorough research may reduce the risk of audit even in unclear areas

This website is not affiliated with document authors or copyright owners. This page is provided for informational purposes only. Unintentional errors are possible.