volume 7, issue 2, P275-292 2001
DOI: 10.1017/s1357321700002233
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K.C. Yuen, H. Yang, K.L. Chu

Abstract: The constant elasticity of variance (CEV) diffusion process can be used to model heteroscedasticity in returns of common stocks. In this diffusion process, the volatility is a function of the stock price and involves two parameters. Similar to the Black-Scholes analysis, the equilibrium price of a call option can be obtained for the CEV model. The purpose of this paper is to propose a new estimation procedure for the CEV model. A merit of our method is that no constraints are imposed on the elasticity paramet…

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