Implicit Bayesian Inference Using Option Prices.

A Bayesian approach to option pricing is presented, in which posterior inference about the underlying returns process is conducted implicitly, via observed option prices. A range of models which allow for conditional leptokurtosis, skewness and time-varying volatility in returns, are considered, with posterior parameter distributions and model probabilities backed out from the option prices. Fit, predictive and hedging densities associated with the different models are produced. Models are ranked according to several criteria, including their ability to fit observed option prices, predict future option prices and minimize hedging errors. In addition to model-specific results, averaged predictive and hedging densities are produced, the weights used in the averaging process being the posterior model probabilities. The method is applied to option price data on the S&P500 stock index. Whilst the results provide some support for the Black-Scholes model, no one model dominates according to all criteria considered.Bayesian Implicit Inference; Option Pricing Errors; Option Price Prediction; Hedging Errors; Nonnormal Returns Models; GARCH; Bayesian Model averaging.

Parametric Pricing of Higher Order Moments in S&P500 Options.

A general parametric framework is developed for pricing S&P500 options. Skewness and leptokurtosis in stock returns as well as time-varying volatility are priced. The parametric pricing model nests the Black-Scholes model and can explain volatility smiles and skews in stock options. The data consist of S&P500 options traded on select days in April, 1995, a total sample of over 500,000 observations. A number of performance criteria are used to evaluate the alternative models. The empirical results show that pricing higher order moments yield improvements in the pricing of options over the Black-Scholes model as well as other models.Option Pricing; Volatility Smiles and Skews; Generalized Student t; Skewness; Kurtosis; Time-Varying Volatility.

Music in electronic markets: an empirical study

Music plays an important, and sometimes overlooked part in the transformation of communication and distribution channels. With a global market volume exceeding US$40 billion, music is not only one of the primary entertainment goods in its own right. Since music is easily personalized and transmitted, it also permeates many other services across cultural borders, anticipating social and economic trends. This article presents one of the first detailed empirical studies on the impact of internet technologies on a specific industry. Drawing on more than 100 interviews conducted between 1996 and 2000 with multinational and independent music companies in 10 markets, strategies of the major players, current business models, future scenarios and regulatory responses to the online distribution of music files are identified and evaluated. The data suggest that changes in the music industry will indeed be far-reaching, but disintermediation is not the likely outcome

Book Reviews

Book Review 1Book Title: Zoological Catalogue of Australia Vol. 34. Hemichordata, Tunicata, CephalochordataBook Authors: Editors A. Wells & W.W.K. Houston1998. CSIRO Publishing, Melbourne. 298pp.Book Review 2Book Title: Biodiversity dynamics and conservation: the freshwater fish of tropical AfricaBook Author: Christian Léveque 1997. ISBN 0 521 570336. Cambridge University Press, Cambridge.Book Review 3Book Title: Biology and ecology in southern African estuariesBook Author: Alan K. Whitfield Ichthyological Monographs of the J.L.B. Smith Institute of Ichthyology, No.2. 1998. ISBN 0-86810-333-0. Hardcover, 223 pp.Book Review 4Book Title: The Southern synthesis. Fauna of Australia Vol. 5Book Authors: P.L. Beesley, G.J.B. Ross & A. Wells 1998. CSIRO Publishing, Melbourne.Book Review 5Book Title: The Kingdon field guide to African mammalsBook Author: Jonathan Kingdon1997. Academic Press (locally available at Russell & Friedman. Box 73, Halfway House) 465pp. ISBN 0-12-408355-2.Book Review 6Book Title: Cooperative breeding in mammalsBook Authors: Edited by Nancy G. Solomon & Jeffrey A. FrenchCambridge University Press, Cambridge, UK. 1997. 390 pp. ISBN 0521 4591 3

Three-body relativistic flux tube model from QCD Wilson-loop approach

First we review the derivation of the relativistic flux tube model for a quark-antiquark system from Wilson area law as we have given in a preceding paper. Then we extend the method to the three-quark case and obtain a Lagrangian corresponding to a star flux tube configuration. A Hamiltonian can be explicitly constructed as an expansion in $1 / m^2$ or in the string tension $\sigma$. In the first case it reproduces the Wilson loop three-quark semirelativistic potential; in the second one, very complicated in general, but it reproduces known string models for slowly rotating quarks.Comment: 14 pages, latex, uses elsart.sty, 2 figures available upon reques