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An Empirical Investigation of the Market for Comex Gold Futures Options

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  • Bailey, Warren Bernard

Abstract

Asset-pricing models which assume a constant interest rate may misprice contingent claims if the interest rate fluctuates significantly or if the price of the underlying asset is cor-related with the interest rate. A model per-m itting a stochastic interest rate and correlation of the underlying a sset's price with the interest rate is tested with daily closing pric es for Comex gold futures options. The stochastic interest-rate model is superior to a constant interest-rate model in predicting market p rices. The results suggest that interest-rate volatility is an import ant element in contingent-claims valuation. Copyright 1987 by American Finance Association.

Suggested Citation

  • Bailey, Warren Bernard, 1987. "An Empirical Investigation of the Market for Comex Gold Futures Options," Journal of Finance, American Finance Association, vol. 42(5), pages 1187-1194, December.
    • Handle: RePEc:bla:jfinan:v:42:y:1987:i:5:p:1187-94
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    Cited by:

    1. Raj Aggarwal & Brian M. Lucey, 2007. "Psychological barriers in gold prices?," Review of Financial Economics, John Wiley & Sons, vol. 16(2), pages 217-230.
    2. Bailey, Warren & Chung, Y. Peter & Kag, Jun-koo, 1996. "Investment restrictions and the pricing of Korean convertible Eurobonds," Pacific-Basin Finance Journal, Elsevier, vol. 4(1), pages 93-111, May.
    3. Poon, Winnie P. H. & Duett, Edwin H., 1998. "An empirical examination of currency futures options under stochastic interest rates," Global Finance Journal, Elsevier, vol. 9(1), pages 29-50.
    4. Wei, Yu & Wang, Yizhi & Lucey, Brian M. & Vigne, Samuel A., 2023. "Cryptocurrency uncertainty and volatility forecasting of precious metal futures markets," Journal of Commodity Markets, Elsevier, vol. 29(C).
    5. Bailey, Warren, 1989. "Applying a Stochastic Model to the Tenn Structure of Interest Rates in Malaysia," Jurnal Ekonomi Malaysia, Faculty of Economics and Business, Universiti Kebangsaan Malaysia, vol. 20(December), pages 3-17.

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