Price discovery functions in KOSPI 200 stock and options markets : empirical tests using Heston and Black-Scholes models

Abstract

This paper empirically investigates the intraday relations between stock returns and options returns of the KOSPI 200 markets during the period of June 2003 to May 2004. We employ both Heston model and Black-Scholes model to calculate the implied forward prices from options data and present the comparison analysis of the results. Also, we use the methods of error correction to estimate the contributions of stock and option markets to price discovery. Overall results reveal that the stock market leads both call and put options market.