Testing Option Pricing Models

David S. Bates

No 5129, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper discusses the commonly used methods for testing option pricing models, including the Black-Scholes, constant elasticity of variance, stochastic volatility, and jump-diffusion models. Since options are derivative assets, the central empirical issue is whether the distributions implicit in option prices are consistent with the time series properties of the underlying asset prices. Three relevant aspects of consistency are discussed, corresponding to whether time series-based inferences and option prices agree with respect to volatility, changes in volatility, and higher moments. The paper surveys the extensive empirical literature on stock options, options on stock indexes and stock index futures, and options on currencies and currency futures.

JEL-codes: G13 (search for similar items in EconPapers)
Date: 1995-05
Note: AP
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (26)

Published as in G.S. Maddale and C.R. Rao, editers, Handbook of Statistics: Statistical Methods in Finance, Vol. 14, 1996, pp. 567-611.

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