An Event Option Pricing Model with Scheduled and Unscheduled Announcement Effects

Abraham Abraham and William M Taylor

Review of Quantitative Finance and Accounting, 1997, vol. 8, issue 2, 62 pages

Abstract: There is considerable evidence supporting the time-varying distribution of asset returns. There is also ample evidence that scheduled announcement events such as money supply announcements (in the case of foreign exchange), earnings announcements (in the case of stocks), and crop reports (in the case of commodities), as well as random unscheduled events, can affect the level and volatility of asset returns. This study provides an Event Model for European call options which explicitly addresses effects of these two classes of events. This specification requires estimation of more parameters, but it could provide a more accurate basis for pricing options than previous Poisson jump-diffusion models. Parametric analysis shows that the standard models under-price the options relative to the Event Model. The Event Model may be particularly useful in pricing short-term deep out-of-the-money options when scheduled events are present in the market. Copyright 1997 by Kluwer Academic Publishers

Date: 1997
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://journals.kluweronline.com/issn/0924-865X/contents link to full text (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:kap:rqfnac:v:8:y:1997:i:2:p:151-62

Ordering information: This journal article can be ordered from
http://www.springer.com/finance/journal/11156/PS2

Access Statistics for this article

Review of Quantitative Finance and Accounting is currently edited by Cheng-Few Lee

More articles in Review of Quantitative Finance and Accounting from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().