The effect of volatility changes on the level of stock prices and subsequent expected returns

Article Abstract:

This paper estimates volatility changes in daily returns to the Dow Jones Industrial Average over the sample period 1897 through 1988. This allows a direct investigation of the reaction of the level of stock prices and subsequent expected returns to these estimated changes in volatility. We provide empirical evidence consistent with relatively large and systematic revisions in stock prices and subsequent expected returns to volatility changes. However, there appears to be an asymmetry in the market's reaction to volatility increases as opposed to volatility decreases. A majority of our volatility changes cannot be associated with the release of significant economic information. (Reprinted by permission of the publisher.)

Return on investment, Rate of return, Dow Jones Industrial Average

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On jumps in common stock prices and their impact on call option pricing

Article Abstract:

Systematic empirical biases are evident in the Black-Scholes call option pricing model that may be eliminated by the Merton call option pricing model, which admits jumps in the underlying security return process explicitly. Statistical evidence consistent with the existence of lognormally distributed jumps in a majority of the daily returns of a sample of New York Stock Exchange listed common stocks is provided. No operationally significant differences between the Merton model prices and the Black-Scholes model prices of the call options written on the common stocks sampled are evident, however.

Models, Analysis, Stock-exchange, Stock exchanges, Securities, Investments, Mathematical models

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Futures options and the volatility of futures prices

Article Abstract:

Futures options available on European markets consist of options written on futures prices relative to either commodity or financial futures. The application of standard option pricing techniques is discussed in terms of both European and U.S. futures options. The futures options markets are also evaluated in terms of the efficient markets hypothesis.

Europe, Options (Finance), Financial futures, Commodity futures, Commodity options

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