IMPLIED VOLATILITY FUNCTIONS IN ARBITRAGE-FREE TERM STRUCTURE MODELS

• 成果类型: Article
• 署名作者: AMIN, KI; MORTON, AJ
• 署名单位: University of Illinois System; University of Illinois Chicago; University of Illinois Chicago Hospital
• 刊物名称: JOURNAL OF FINANCIAL ECONOMICS
• ISSN/ISSBN: 0304-405X
• DOI: 10.1016/0304-405X(94)90002-7
• 发表日期: 1994
• 页码: 141-180
• 关键词: ARBITRAGE-FREE MODELS; EURODOLLAR FUTURES OPTIONS; implied volatility; Interest rate options; term structure

摘要

We test six term structure models in the Heath, Jarrow, and Morton (1992) class using Eurodollar futures and options data from 1987-1992. We study the time series of implied interest rate volatilities from these models. Using one-day lagged implied volatilities, our one- and two-parameter models simultaneously price an average of 18.5 options each day with an average absolute error of one-and-a-half to two basis points. Although the models fit well, we document systematic strike-price and time-to-maturity biases for all models. We also implement simple trading strategies to test whether the models identify genuine biases.