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dc.contributor.author Bollen, NPB
dc.contributor.author Rasiel, E
dc.date.accessioned 2010-03-09T15:34:44Z
dc.date.issued 2003-02-01
dc.identifier.citation Journal of International Money and Finance, 2003, 22 (1), pp. 33 - 64
dc.identifier.issn 0261-5606
dc.identifier.uri http://hdl.handle.net/10161/1967
dc.description.abstract We compare option valuation models based on regime-switching, GARCH, and jump-diffusion processes to a standard "smile" model, in which Black and Scholes (1973) implied volatilities are allowed to vary across strike prices. The regime-switching, GARCH, and jump-diffusion models provide significant improvement over a fixed smile model in fitting GBP and JPY option prices both in-sample and out-of-sample. The jump-diffusion model achieves the tightest fit. A time-varying smile model, however, provides hedging performance that is comparable to the other models for the GBP options. This result suggests that standard option valuation techniques may provide a reasonable basis for trading and hedging strategies. © 2003 Elsevier Science Ltd. All rights reserved.
dc.format.extent 33 - 64
dc.format.mimetype application/pdf
dc.language.iso en_US
dc.relation.ispartof Journal of International Money and Finance
dc.relation.isversionof 10.1016/S0261-5606(02)00073-6
dc.title The performance of alternative valuation models in the OTC currency options market
dc.type Journal Article
dc.department Economics
pubs.issue 1
pubs.organisational-group /Duke
pubs.organisational-group /Duke/Trinity College of Arts & Sciences
pubs.organisational-group /Duke/Trinity College of Arts & Sciences/Economics
pubs.publication-status Published
pubs.volume 22

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