Jeremy C. Stein

Overview

Jeremy C. Stein is an economist who at the time of Stein and Stein (1991) was at the MIT Sloan School of Management. He later moved to Harvard University and served as a Governor of the Federal Reserve Board (2012–2014). His early work on options markets includes the influential "Overreactions in the Options Market" (Journal of Finance, 1989), which documented that implied volatilities for long-dated S&P 100 options overreact to short-term volatility shocks — providing the empirical calibration input for the OU model in Stein-Stein (1991).

Key Contributions / Features

• Stein (1989): Estimated AR1 parameters for S&P 100 implied volatility; found volatility half-life $\approx 1$ month ($\delta \approx 8$), no evidence of skewness in implied vol distribution — supporting the arithmetic (vs. geometric) OU specification.
• Stein and Stein (1991): Co-derived exact and approximate closed-form stock price distributions under arithmetic OU stochastic volatility; showed volatility smile and power-law fat tails; linked tail fatness to stationarity of the volatility process.

Related

• Stochastic Volatility
• Elias M. Stein