A Portfolio Perspective on Option Pricing Anomalies
We empirically study the economic benefits of giving investors access to index options in the context of the standard asset allocation problem. We analyze both expected-utility and non-expected-utility investors in order to understand who optimally buys and sells in option markets. We solve the portfolio problem with a flexible empirical methodology that does not rely on specific assumptions about the process of the underlying equity index. Using data on Samp;P 500 index options (1987-2001) we consider returns on OTM put options and ATM straddles. CRRA investors find it always optimal to short put options and straddles, regardless of their risk aversion. The option positions are economically and statistically significant and robust to corrections for transaction costs, margin requirements, and Peso problems. Surprisingly, loss-averse and disappointment-averse investors also optimally hold short positions in puts and straddles. Because derivatives are in zero net supply, this suggests that generating empirically relevant option prices in an equilibrium model is a challenging task, even with investor heterogeneity and even with commonly-studied behavioral preferences. Only when loss aversion is combined with highly distorted probability assessments, can we obtain positive portfolio weights for puts and straddles
Year of publication: |
[2004]
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Authors: | Driessen, Joost |
Other Persons: | Maenhout, Pascal J. (contributor) |
Publisher: |
[2004]: [S.l.] : SSRN |
Saved in:
freely available
Extent: | 1 Online-Ressource (52 p) |
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Type of publication: | Book / Working Paper |
Notes: | Nach Informationen von SSRN wurde die ursprüngliche Fassung des Dokuments October 2004 erstellt |
Other identifiers: | 10.2139/ssrn.424384 [DOI] |
Source: | ECONIS - Online Catalogue of the ZBW |
Persistent link: https://www.econbiz.de/10012738965
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