TY  - JOUR
AU  - Bates,David S.
TI  - Testing Option Pricing Models
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 5129
PY  - 1995
Y2  - May 1995
DO  - 10.3386/w5129
UR  - http://www.nber.org/papers/w5129
L1  - http://www.nber.org/papers/w5129.pdf
N1  - Author contact info:
David S. Bates
Henry B. Tippie College of Business
Department of Finance
University of Iowa
Iowa City, IA 52242-1000
Tel: 319/353-2288
Fax: 319/335-3690
E-Mail: david-bates@uiowa.edu
AB  - This paper discusses the commonly used methods for testing option pricing models, including the Black-Scholes, constant elasticity of variance, stochastic volatility, and jump-diffusion models.  Since options are derivative assets, the central empirical issue is whether the distributions implicit in option prices are consistent with the time series properties of the underlying asset prices.  Three relevant aspects of consistency are discussed, corresponding to whether time series-based inferences and option prices agree with respect to volatility, changes in volatility, and higher moments.  The paper surveys the extensive empirical literature on stock options, options on stock indexes and stock index futures, and options on currencies and currency futures.
ER  -