Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
5091664 | Journal of Banking & Finance | 2005 | 23 Pages |
Abstract
This paper compares the empirical performances of statistical projection models with those of the Black-Scholes (adapted to account for skew) and the GARCH option pricing models. Empirical analysis on S&P500 index options shows that the out-of-sample pricing and projected trading performances of the semi-parametric and nonparametric projection models are substantially better than more traditional models. Results further indicate that econometric models based on nonlinear projections of observable inputs perform better than models based on OLS projections, consistent with the notion that the true unobservable option pricing model is inherently a nonlinear function of its inputs. The econometric option models presented in this paper should prove useful and complement mainstream mathematical modeling methods in both research and practice.
Related Topics
Social Sciences and Humanities
Economics, Econometrics and Finance
Economics and Econometrics
Authors
An-Sing Chen, Mark T. Leung,