Crash of '87 - Was it Expected? Aggregate Market Fears and Long Range Dependence

Gencay, Ramazan; Gradojevic, Nikola

doi:10.2139/ssrn.959547

Abstract

References (23)

Citations (1)

Download This Paper | Share | Email |Add to Briefcase | Purchase Bound Hard Copy

Crash of '87 - Was it Expected? Aggregate Market Fears and Long Range Dependence

Lakehead University - Faculty of Business Administration

2006

Abstract:
We develop a dynamic framework to identify aggregate market fears ahead of a major market crash through the skewness premium of European options. Our methodology is based on measuring the distribution of a skewness premium through a q-Gaussian density and a maximum entropy principle. Our findings indicate that the October 19th, 1987 crash was predictable from the study of the skewness premium of deepest out-of-the-money options about two months prior to the crash.

Number of Pages in PDF File: 23

Keywords: Non-additive Entropy, Shannon Entropy, Tsallis Entropy, q-Gaussian Distribution.

JEL Classification: G1, C40

working papers series

Download This Paper

Date posted: January 27, 2007

Suggested Citation

Gencay, Ramazan and Gradojevic, Nikola, Crash of '87 - Was it Expected? Aggregate Market Fears and Long Range Dependence (2006). Available at SSRN: http://ssrn.com/abstract=959547 or http://dx.doi.org/10.2139/ssrn.959547

Contact Information

Ramazan Gencay (Contact Author) Simon Fraser University ( email ) Department of Economics 8888 University Drive Burnaby, British Columbia V5A 1S6 Canada
Nikola Gradojevic Lakehead University - Faculty of Business Administration ( email ) 955 Oliver Road 955 Oliver Road Thunder Bay, Ontario P7B 5E1 Canada 807-343-8419 (Phone) HOME PAGE: http://foba.lakeheadu.ca/gradojevic/

Abstract

References (23)

Citations (1)

Crash of '87 - Was it Expected? Aggregate Market Fears and Long Range Dependence

Ramazan Gencay

Nikola Gradojevic

Date posted: January 27, 2007

Suggested Citation

Contact Information

Ramazan Gencay (Contact Author)

Nikola Gradojevic