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Date of Graduation
Bachelor of Science (BS)
Department of Finance and Business Law
Following the financial crisis of 2007-2009, many analysts argued that market insiders should have anticipated the crisis. We update and apply the Bates (1991) method to see if investors anticipated a stock market crash during this period. S&P 500 options prices are used to estimate daily implicit parameters from the constant volatility jump diffusion (CVJD) model used by Bates, a stochastic volatility no-jump (SV) model, and a stochastic volatility jump diffusion (SVJD) model, and we analyze the implicit investor expectations of large negative price jumps in the stock market. Rather than finding any predictions of the crisis, we find evidence of efficient markets as the parameters implied by S&P 500 options move in step with the market as a whole.
Kitchens, Eric Gene, "Investor expectations of the 2007-2009 Financial Crisis: Applying the Bates model to modern Stock Market events" (2014). Senior Honors Projects, 2010-2019. 438.