01761cam a22002537 4500001000600000003000500006005001700011008004100028100002100069245016300090260006600253490004100319500001900360520073500379530006101114538007201175538003601247700001601283700001701299710004201316830007601358856003701434856003601471w4519NBER20190718235033.0190718s1993 mau||||fs|||| 000 0 eng d1 aEngle, Robert F.10aIndex-Option Pricing with Stochastic Volatility and the Value of Accurate Variance Forecastsh[electronic resource] /cRobert F. Engle, Alex Kane, Jaesun Noh. aCambridge, Mass.bNational Bureau of Economic Researchc1993.1 aNBER working paper seriesvno. w4519 aNovember 1993.3 aIn pricing primary-market options and in making secondary markets, financial intermediaries depend on the quality of forecasts of the variance of the underlying assets. Hence, the gain from improved pricing of options would be a measure of the value of a forecast of underlying asset returns. NYSE index returns over the period of 1968-1991 are used to suggest that pricing index options of up to 90-days maturity would be more accurate when: (1) using ARCH specifications in place of a moving average of squared returns; (2) using Hull and White's (1987) adjustment for stochastic variance in Black and Scholes's (1973) formula; (3) accounting explicitly for weekends and the slowdown of variance whenever the market is closed. aHardcopy version available to institutional subscribers. aSystem requirements: Adobe [Acrobat] Reader required for PDF files. aMode of access: World Wide Web.1 aKane, Alex.1 aNoh, Jaesun.2 aNational Bureau of Economic Research. 0aWorking Paper Series (National Bureau of Economic Research)vno. w4519.4 uhttp://www.nber.org/papers/w451941uhttp://dx.doi.org/10.3386/w4519