search query: @author Brandt, M.W. / total: 5
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| Author: | Brandt, M.W. Wu, T. |
| Title: | Cross-sectional tests of deterministic volatility functions |
| Journal: | Journal of Empirical Finance
2002 : DEC, VOL. 9:5, p. 525-550 |
| Index terms: | Stock markets Stock options Pricing Volatility Models |
| Language: | eng |
| Abstract: | This paper studies the cross-sectional performance of option pricing models in which the volatility of the underlying stock is a deterministic function of the stock price and time. For each date in the paper's sample of FTSE 100 index option prices, fitted is an implied binomial tree to the panel of all European style options with different strike prices and maturities and then examined how well this model prices a corresponding panel of American style options. It is found that the implied binomial tree model performs no better than an ad-hoc procedure of smoothing BlackĀScholes implied volatilities across strike prices and maturities. These cross-sectional results complement the time-series findings of Dumas et al. in J. Finance (1998): 53, 2059. |
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