The importance of the loss function in option valuation

• 成果类型: Article
• 署名作者: Christoffersen, P; Jacobs, K
• 署名单位: McGill University; Universite de Montreal
• 刊物名称: JOURNAL OF FINANCIAL ECONOMICS
• ISSN/ISSBN: 0304-405X
• DOI: 10.1016/j.jfineco.2003.02.001
• 发表日期: 2004
• 页码: 291-318
• 关键词: implied volatility functions; valuation errors; out-of-sample forecasting; parameter stability

摘要

Which loss function should be used when estimating and evaluating option valuation models? Many different functions have been suggested, but no standard has emerged. We emphasize that consistency in the choice of loss functions is crucial. First, for any given model, the loss function used in parameter estimation and model evaluation should be the same, otherwise suboptimal parameter estimates may be obtained. Second, when comparing models, the estimation loss function should be identical across models, otherwise inappropriate comparisons will be made. We illustrate the importance of these issues in an application of the so-called Practitioner Black-Scholes model to S&P 500 index options. (C) 2003 Elsevier B.V. All rights reserved.