David S. Bates

Learn More
Your use of the JSTOR archive indicates your acceptance of JSTOR's Terms and Conditions of Use, available at http://www.jstor.org/page/info/about/policies/terms.jsp. JSTOR's Terms and Conditions of Use provides, in part, that unless you have obtained prior permission, you may not download an entire issue of a journal or multiple copies of articles, and you(More)
We document the di erential pricing of individual equity options versus the market index, and relate it to variations in return skewness. The impact of risk aversion induced by marginalutility tilting of the physical density can introduce skewness in the risk-neutral density. We derive laws that decompose individual return skewness into a systematic(More)
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(More)
This paper investigates the empirical characteristics of investor risk aversion over equity return states by estimating a time-varying pricing kernel, which we call the empirical pricing kernel (EPK). We estimate the EPK on a monthly basis from 1991 to 1995, using S&P 500 index option data and a stochastic volatility model for the S&P 500 return process. We(More)
This paper examines the equilibrium when negative stock market jumps (crashes) can occur, and investors have heterogeneous attitudes towards crash risk. The less crash-averse insure the more crash-averse through the options markets that dynamically complete the economy. The resulting equilibrium is compared with various option pricing anomalies reported in(More)
We investigate the implications of time-varying expected return and volatility on asset allocation in a high-dimensional setting. We propose a DFMSV model that allows the first two moments of returns to vary over time for a large number of assets. We then evaluate the economic significance of the DFMSV model by examining the performance of various dynamic(More)
We use a novel pricing model to imply time series of diffusive volatility and jump intensity from S&P 500 index options. These two measures capture the ex-ante risk assessed by investors. Using a simple general equilibriummodel, we translate the implied measures of ex-ante risk into an ex-ante risk premium. The average premium that compensates the investor(More)
and the Canadian Economics Association for helpful comments and discussion. Remaining errors are mine. Abstract This paper investigates the predictive power of implied variances extracted from currency options. Under the assumption that the options market is informationally eecient and that options are priced according to the model of Hull and White (1987),(More)