01922cam a22002297 4500001000600000003000500006005001700011008004100028100002000069245009400089260006600183490004100249500001800290520102400308530006101332538007201393538003601465710004201501830007601543856003701619856003601656w5894NBER20180421120102.0180421s1997 mau||||fs|||| 000 0 eng d1 aBates, David S.10aPost-'87 Crash Fears in S&P 500 Futures Optionsh[electronic resource] /cDavid S. Bates. aCambridge, Mass.bNational Bureau of Economic Researchc1997.1 aNBER working paper seriesvno. w5894 aJanuary 1997.3 aThis paper shows that post-crash implicit distributions have been strongly negatively skewed, and examines two competing explanations: stochastic volatility models with negative correlations between market levels and volatilities, and negative-mean jump models with time-varying jump frequencies. The two models are nested using a Fourier inversion European option pricing methodology, and fitted to S&P 500 futures options data over 1988-1993 using a nonlinear generalized least squares/Kalman filtration methodology. While volatility and level shocks are substantially negatively correlated, the stochastic volatility model can explain the implicit negative skewness only under extreme parameters (e.g., high volatility of volatility) that are implausible given the time series properties of option prices. By contrast, the stochastic volatility/jump-diffusion model generates substantially more plausible parameter" estimates. Evidence is also presented against the hypothesis that volatility follows a diffusion. aHardcopy version available to institutional subscribers. aSystem requirements: Adobe [Acrobat] Reader required for PDF files. aMode of access: World Wide Web.2 aNational Bureau of Economic Research. 0aWorking Paper Series (National Bureau of Economic Research)vno. w5894.4 uhttp://www.nber.org/papers/w589441uhttp://dx.doi.org/10.3386/w5894