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Associate Professor of Finance, University of Alberta and Visiting Associate Professor of Finance, University of Chicago. This research was supported by the Finance Research Foundation of Canada. Comments and suggestions by Fred D. Arditti, Warren Bailey, Giovanni Barone-Adesi, Bruce Cooil, Theodore E. Day, Thomas S. Y. Ho, Hans R. Stoll, and a referee and an Associate Editor of this Journal are gratefully acknowledged.
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Valuation of American Futures Options: Theory and Empirical Tests
Article first published online: 30 APR 2012
DOI: 10.1111/j.1540-6261.1986.tb04495.x
1986 The American Finance Association
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How to Cite
WHALEY, R. E. (1986), Valuation of American Futures Options: Theory and Empirical Tests. The Journal of Finance, 41: 127–150. doi: 10.1111/j.1540-6261.1986.tb04495.x
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Associate Professor of Finance, University of Alberta and Visiting Associate Professor of Finance, University of Chicago. This research was supported by the Finance Research Foundation of Canada. Comments and suggestions by Fred D. Arditti, Warren Bailey, Giovanni Barone-Adesi, Bruce Cooil, Theodore E. Day, Thomas S. Y. Ho, Hans R. Stoll, and a referee and an Associate Editor of this Journal are gratefully acknowledged.
Publication History
- Issue published online: 30 APR 2012
- Article first published online: 30 APR 2012
- Abstract
- References
- Cited By
ABSTRACT
This paper reviews the theory of futures option pricing and tests the valuation principles on transaction prices from the S&P 500 equity futures option market. The American futures option valuation equations are shown to generate mispricing errors which are systematically related to the degree the option is in-the-money and to the option's time to expiration. The models are also shown to generate abnormal risk-adjusted rates of return after transaction costs. The joint hypothesis that the American futures option pricing models are correctly specified and that the S&P 500 futures option market is efficient is refuted, at least for the sample period January 28, 1983 through December 30, 1983.