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Donald Chiras, Steven Manaster (1978)
The information content of option prices and a test of market efficiencyJournal of Financial Economics, 6
R. Merton (1976)
Option pricing when underlying stock returns are discontinuousJournal of Financial Economics, 3
H. Latané, Richard Rendleman (1976)
STANDARD DEVIATIONS OF STOCK PRICE RATIOS IMPLIED IN OPTION PRICESJournal of Finance, 31
Blattberg Blattberg, Gonedes Gonedes (1974)
“A Comparison of the Stable and Student Distributions as Stochastic Models for Stock Prices,”Journal of Business, 47
James MacBeth, L. Merville (1979)
An Empirical Examination of the Black‐Scholes Call Option Pricing ModelJournal of Finance, 34
Barr Rosenberg. (1972)
The Behavior of Random Variables with Nonstationary Variance and the Distribution of Security Prices
M. Garman. (1976)
A General Theory of Asset Valuation under Diffusion State Processes
Richard Roll (1977)
An analytic valuation formula for unprotected American call options on stocks with known dividendsJournal of Financial Economics, 5
F. Black (1975)
Fact and Fantasy in the Use of OptionsFinancial Analysts Journal, 31
R. Schmalensee, R. Trippi (1978)
COMMON STOCK VOLATILITY EXPECTATIONS IMPLIED BY OPTION PREMIAJournal of Finance, 33
Robert Blattberg, Nicholas Gonedes (1974)
A Comparison of the Stable and Student Distributions as Statistical Models for Stock Prices: ReplyThe Journal of Business, 50
J. Cox, S. Ross (1976)
The valuation of options for alternative stochastic processesJournal of Financial Economics, 3
E. Fama (1970)
Multiperiod Consumption-Investment DecisionsThe American Economic Review, 60
F. Black, Myron Scholes (1973)
The Pricing of Options and Corporate LiabilitiesJournal of Political Economy, 81
Tests of the Black-Scholes and Cox Call Option Valuation Models JAMES D. MACBETH and LARRY J. MERVILLE* I. Introduction IN THIS RESEARCH we use Coxâs [7] and Cox and Rossâ [8] constant elasticity of variance diffusion processes to model heteroscedasticity in returns to common stocks. The major goal of this paper is to test the Cox call option valuation model for constant elasticity of variance diffusion processes against the Black-Scholes [4] call option valuation model. We find that common stock prices do appear to be generated by constant elasticity of variance diffusion processes; moreover, we find that the Cox valuation model fits market prices of call options significantly better than the Black-Scholes model. Thus, our results have important implications for empirical analysis of call option data and may very well have important implications for empirical analysis of common stock prices and prices of other financial instruments. At the theoretical level there are several plausible explanations for changes in stock return variances over time. First, firms may internally change their common stock return distribution through technological innovations and/or mergers and acquisitions. Another area of possible explanation for dynamic variances is contained in multiperiod consumption-investment theory (Rubinstein [161 and Fama
The Journal of Finance – Wiley
Published: May 1, 1980
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