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Stock Price Jumps and Their Impact on Option Valuation (1995)
| Venue: | Johannes Gutenberg-Universität |
| Citations: | 4 - 0 self |
BibTeX
@ARTICLE{Trautmann95stockprice,
author = {Siegfried Trautmann and Michaela Beinert},
title = {Stock Price Jumps and Their Impact on Option Valuation},
journal = {Johannes Gutenberg-Universität},
year = {1995},
volume = {59}
}
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Abstract
The purpose of this paper is threefold. First, we use ML-techniques to estimate a Poissontype jump diffusion model that describes the return behavior of actively traded German stocks and the DAX stock index as a proxy of aggregate wealth, respectively. We find that jump risk is statistically significant and systematic. Second, we compute option values according to Merton's idiosyncratic jump risk model and the more recent systematic jump risk model and compare them with Black/Scholes values. Using a comprehensive sample of stock options traded at the Frankfurt Options Market between April 1983 and June 1990 and at the Deutsche Terminb orse between January 1990 and December 1991, respectively, we find only in post-crash periods economically significant differences between Black/Scholes and systematic jump risk option values when using historical parameter estimates. Third, we take the systematic jump risk model to infer the implicit stock price distributions from observed option price...
Keyphrases
option valuation stock price jump significant difference observed option price dax stock index recent systematic jump risk model deutsche terminb orse stock option post-crash period comprehensive sample idiosyncratic jump risk model implicit stock price distribution jump risk frankfurt option market systematic jump risk option value systematic jump risk model return behavior aggregate wealth option value traded german stock historical parameter estimate poissontype jump diffusion model black scholes value black scholes
