An Event Option Pricing Model with Scheduled and Unscheduled Announcement Effects

An Event Option Pricing Model with Scheduled and Unscheduled Announcement Effects There is considerable evidence supporting the time-varying distribution of asset returns. There is also ample evidence that scheduled announcement events such as money supply announcements (in the case of foreign exchange), earnings announcements (in the case of stocks), and crop reports (in the case of commodities), as well as random unscheduled events, can affect the level and volatility of asset returns. This study provides an Event Model for European call options which explicitly addresses effects of these two classes of events. This specification requires estimation of more parameters, but it could provide a more accurate basis for pricing options than previous Poisson jump-diffusion models. Parametric analysis shows that the standard models under price the options relative to the Event Model. The Event Model may be particularly useful in pricing short-term deep out-of-the-money options when scheduled events are present in the market. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Quantitative Finance and Accounting Springer Journals

An Event Option Pricing Model with Scheduled and Unscheduled Announcement Effects

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Publisher
Kluwer Academic Publishers
Copyright
Copyright © 1997 by 1997 Kluwer Academic Publishers
Subject
Finance; Corporate Finance; Accounting/Auditing; Econometrics; Operation Research/Decision Theory
ISSN
0924-865X
eISSN
1573-7179
D.O.I.
10.1023/A:1008249800346
Publisher site
See Article on Publisher Site

References

  • A Theory of Intraday Patterns: Volume and Price Variability
    Admati, A. R.; Pfleiderer, P.

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