IMPLEMENTING OPTION PRICING-MODELS WHEN ASSET RETURNS ARE PREDICTABLE

• 成果类型: Article
• 署名作者: LO, AW; WANG, J
• 刊物名称: JOURNAL OF FINANCE
• ISSN/ISSBN: 0022-1082
• DOI: 10.2307/2329240
• 发表日期: 1995
• 页码: 87-129
• 关键词: VARYING RISK PREMIA; equity premium; stock returns; MARKET-EFFICIENCY; SECURITY RETURNS; Bond markets; consumption; prices; tests; expectations

摘要

The predictability of an asset's returns will affect the prices of options on that asset, even though predictability is typically induced by the drift, which does not enter the option pricing formula. For discretely-sampled data, predictability is linked to the parameters that do enter the option pricing formula. We construct an adjustment for predictability to the Black-Scholes formula and show that this adjustment can be important even for small levels of predictability, especially for longer maturity options. We propose several continuous-time linear diffusion processes that can capture broader forms of predictability, and provide numerical examples that illustrate their importance for pricing options.