Earticle

초록

영어

One of the most widely used option valuation models among practitioners is the ad hoc Black-Scholes (AHBS) model. The main contribution of this study is methodological. We carefully consider three dividend strategies (No dividend, Implied-forward dividend, and Actual dividend) for the AHBS model to investigate their eect on pricing errors. We suggest a new dividend strategy, implied forward dividend, which incorporates expectational information on dividends embedded in option prices. We demonstrate that our implied forward dividend strategy produces more consistent estimates between in-sample market and model option prices. Probably even more important is that our new implied forward dividend strategy makes more accurate out-of-sample forecasts for 1-day or 1-week ahead prices. Second, we document that both a Return-volatility Smile and a Return-pricing Error Smile exist. From these return characteristics, we make two conclusions: (1) the return dependency of implied volatility is an important explanatory variable and should be controlled to reduce the pricing error of an AHBS model, and (2) it is important for the hedging horizon to be based on return size, i.e. the larger the contemporaneous return, the more frequent an option issuer must rebalance the option's hedge.

목차

Abstract
 1 Introduction
 2 Methodology
  2.1 Ad Hoc Black-Scholes Models
  2.2 Dividend Eect on Option Pricing Formula
  2.3 Error Measures
  2.4 Rollover Strategy
 3 Data
  3.1 Sample Period and Data
  3.2 Return-Volatility Smile
  3.3 Parameter Estimation
 4 Empirical Results
  4.1 In-Sample Pricing Performance
  4.2 Out-of-Sample Pricing
  4.3 Robustness Checks
 5 Conclusion
 6 References
 Table
 Figure

키워드

저자

• Youngsoo Choi [ Hankuk University of Foreign Studies ] Corresponding author.
• Steven J. Jordan [ Econometric Solutions ]
• SoonChan Ok [ Kwanghwamun Bldg. 4th fl. ]

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발행기관

간행물

표지보기 관심저널 등록

• 간행물명

  한국재무학회 학술대회

• 간기

  부정기

• 수록기간

  2006~2024

• 십진분류

  KDC 325 DDC 330