Empirical Tests of Option Pricing Models

Verchenko, Olesia, Department of Economics, University of Virginia
Epps, Thomas W. Epps, Department of Economics, University of Virginia
Otrok, Chris, Department of Economics, University of Virginia

This dissertation examines the empirical performance of several complete and incomplete market models of stock price dynamics using S&P 500 options and stock market data. The main contribution of this work is that it suggests and implementsg an empirical approach to estimating a complete model with uncertain volatility, and then judges it against other popular option pricing processes. The performance of alternative models is evaluated from four perspectives: (1) in - sample flt to stock returns data, (2) in - sample flt to options data, (3) consistency of physical and risk - neutral parameter estimates and (4) out - of - sample option pricing. Overall, the complete model with uncertain volatility is found to flt the data much better than models with constant and price - level - dependent volatilities, and the variance gamma process, and its performance is comparable to that of a stochastic volatility model.

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PHD (Doctor of Philosophy)
stock, market, price, data
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