Author : David S. Bates
Publisher :
ISBN 13 :
Total Pages : 40 pages
Book Rating : 4.:/5 (321 download)
Book Synopsis U.S. stock market crash risk, 1926-2006 by : David S. Bates
Download or read book U.S. stock market crash risk, 1926-2006 written by David S. Bates and published by . This book was released on 2009 with total page 40 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper applies the Bates (RFS, 2006) methodology to the problem of estimating and filtering time- changed Lévy processes, using daily data on U.S. stock market excess returns over 1926-2006. In contrast to density-based filtration approaches, the methodology recursively updates the associated conditional characteristic functions of the latent variables. The paper examines how well time-changed Lévy specifications capture stochastic volatility, the "leverage" effect, and the substantial outliers occasionally observed in stock market returns. The paper also finds that the autocorrelation of stock market excess returns varies substantially over time, necessitating an additional latent variable when analyzing historical data on stock market returns. The paper explores option pricing implications, and compares the results with observed prices of options on S & P 500 futures.