Jumps and Stochastic Volatility: Exchange Rate Processes Implicit in Thephlx Deutschemark Options

@article{Bates1993JumpsAS,
  title={Jumps and Stochastic Volatility: Exchange Rate Processes Implicit in Thephlx Deutschemark Options},
  author={David S. Bates},
  journal={NBER Working Paper Series},
  year={1993}
}
  • David S. Bates
  • Published 1 December 1993
  • Economics
  • NBER Working Paper Series
An efficient method is developed for pricing American options on combination stochastic volatility/jump-diffusion processes when jump risk and volatility risk are systematic and nondiversifiable, thereby nesting two major option pricing models. The parameters implicit in PHLX-traded Deutschemark options of the stochastic volatility/jump- diffusion model and various submodels are estimated over 1984-91, and are tested for consistency with the $/DM futures process and the implicit volatility… 
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