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This chapter focuses on the central empirical issue in option pricing, which is whether the distributions implicit in option prices are consistent with the conditional distributions of the underlying asset prices. Tests of consistency are almost invariably conducted within the framework of a particular distributional hypothesis, and therefore to some extent involve a joint test of consistency and of that distributional hypothesis. The most common framework by far has been the geometric Brownian motion hypothesis underlying the Black-Scholes model. This one-parameter model has been used extensively to examine whether volatility assessments inferred from option prices are consistent with the conditional volatility of the underlying asset price. Results have been mixed: implicit volatilities from most currency options are relatively unbiased forecasts of future currency volatility, whereas substantial biases …