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|Title:||Information-time option pricing: Theory and empirical evidence||Authors:||Chang, C.W.
Information arrival speed
Stochastic time change
|Issue Date:||1998||Citation:||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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