Please use this identifier to cite or link to this item: http://scholarbank.nus.edu.sg/handle/10635/45233
Title: Information-time option pricing: Theory and empirical evidence
Authors: Chang, C.W. 
Chang, J.S.K. 
Lim, K.-G. 
Keywords: G13
Information arrival speed
Information-time
Option pricing
Stochastic time change
Stochastic volatility
Issue Date: 1998
Source: Chang, C.W.,Chang, J.S.K.,Lim, K.-G. (1998). Information-time option pricing: Theory and empirical evidence. Journal of Financial Economics 48 (2) : 211-242. ScholarBank@NUS Repository.
Abstract: With a stochastic time change from calendar-time to information-time, we derive a parsimonious option pricing formula with stochastic volatility as a risk-neutral Poisson sum of Merton's (1973) prices over the option's information-time maturity domain. The formula contains two unobservable parameters, information arrival intensity and information-time asset volatility, with stochastic volatility induced by random information arrival. When the information arrival rate intensifies, the option price increases and vice-versa. We test the formula in pricing, hedging, and excess profits capture empirically using currency and the S&P 500 futures options transaction data.
Source Title: Journal of Financial Economics
URI: http://scholarbank.nus.edu.sg/handle/10635/45233
ISSN: 0304405X
Appears in Collections:Staff Publications

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