Stock market crashes are traumatic events that affect the lives of millions of people around the globe and have tremendous economic implications. Crashes are not only dramatic, but often completely unexpected. The 1987 crash, for example, was not induced by any obvious trigger. Even after the fact, it is hard to find the reason for the crash – Why did the market crash in October rather than in ...

We present an algorithm producing a dynamic non-self-financing hedging strategy in an incomplete market corresponding to investor-relevant risk criterion. The optimization is a twostage process that first determines market calibrated model parameters that correspond to the market price of the option being hedged. In the second stage, an optimal set of model parameters is chosen from the market ...

Stock market is affected by news and information. If the stock market is not efficient, the reaction of stock price to news and information will place the stock market in overreaction and under-reaction states. Many models have been already presented by using different tools and techniques to forecast the stock market behavior. In this study, the reaction of stock price in the stock market was ...

The determination of stock prices and equilibrium expected rates of return in a general equilibrium setting is still imperfectly understood. In particular, as Grossman and Shiller (1981) and others have argued, stock returns appear to be too volatile given the smooth process for dividends and consumption growth. Mehra and Prescott (1985) claim that this smoothness in consumption and dividend gr...

Extreme price movements in the financial markets are rare, but important. The stock market crash on Wall Street in October 1987 and other big financial crises such as the Long Term Capital Management and the bankruptcy of Lehman Brothers have attracted a great deal of attention among investors, practitioners and researchers. The recent worldwide financial crisis characterized by the substantial...

Exchanges adopted several circuit breakers and program trading limits following the 1987 Stock Market Crash. The intended purpose of these policies was to reduce volatility. Unfortunately, there has not been enough extreme volatility to conclusively determine whether they have been effective. The lack of volatility does not demonstrate their effectiveness since extreme volatility is very rare. ...

Liquidity problems lie at the heart of crises on financial markets as demonstrated in this paper by detailed descriptions of the stock market crash in 1987, the LTCM-crisis in 1998 and the financial market consequences of 11 September 2001. The events also demonstrate that modern central banks, in particular the U.S. Federal Reserve under AlanGreenspan, provided emergency liquidity to limit the...

We test whether mandatory IFRS adoption affects firm-level ‘crash risk,’ defined as the frequency of extreme negative stock returns. We separately analyze non-financial firms and financial firms because IFRS is likely to affect their crash risk differently. We find that crash risk decreases among non-financial firms after IFRS adoption, especially among firms in poor information environments an...

An option is a nancial contract whose value depends on that of an underlying asset such as a company stock. The Black-Scholes model for option pricing, published in 1973, revolutionized the nancial industry by introducing a no-arbitrage paradigm for valuing uncertainty and hedging against risk. This simple model assumes that the underlying stock price follows a stochastic Brownian motion proces...