Crash of '87: Was It Expected? The Evidence from Options Markets
- Bates, David S. (University of Pennsylvania. Wharton School)
- Archival Version (Subtitle)
- National Science Foundation
AbstractEfforts to explain why stock markets worldwide crashed in October 1987 have been frustrated by the scarcity of major economic developments occurring around that time that could have precipitated the crashes. It is conceivable that the United States stock market crashed because it was expected to crash. To test this hypothesis, transaction prices of Standard and Poor's 500 futures options over the 1985-1987 period were examined for evidence prior to October 1987 of expectations of an impending crash. It was found that out-of-the-money puts became unusually expensive during the year leading up to the crash. A model was therefore derived for pricing American options on jump-diffusion processes with systematic jump risk. The jump-diffusion parameters implicit in option prices indicate that a crash was expected and that implicit distributions were negatively skewed for the October 1986-August 1987 period. Neither approach, however, points to any strong crash fears in the two months prior to the crash.
Table of Contents
- DS1: Dataset
1985 / 1987Time period: 1985--1987
The files are SP8501.DAT-SP8712.DAT, SPLINE85.DAT-SPLINE87.DAT, SPNOON.PRN, SKEWPREM.PRN, SPPARAM.PRN, SPCP.PRN, and SPTEST.PRN. There are readme files from the original diskettes that describe the contents of the data files.
These data are part of ICPSR's Publication-Related Archive and are distributed exactly as they arrived from the data depositor. ICPSR has not checked or processed this material. Users should consult the investigator(s) if further information is desired.
- 1187 (Type: ICPSR Study Number)
Is previous version of
Bates, David S.. The crash of '87: Was it expected?. Journal of Finance.46, (3), 1009-1044.1991.
- ID: http://www.jstor.org/stable/2328552 (URL)
Update Metadata: 2015-08-05 | Issue Number: 6 | Registration Date: 2015-06-15