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Volatility Risk Premia and Exchange Rate Predictability

Della Corte, Pasquale; Ramadorai, Tarun; Sarno, Lucio - C.E.P.R. Discussion Papers - 2013

We investigate the predictive information content in foreign exchange volatility risk premia for exchange rate returns …. The volatility risk premium is the difference between realized volatility and a model-free measure of expected volatility … that is derived from currency options, and reflects the cost of insurance against volatility ‡fluctuations in the …

Persistent link: https://www.econbiz.de/10011084715

The Effect of Introducing a Non-redundant Derivative on the Volatility of Stock-Market Returns

Bhamra, Harjoat Singh; Uppal, Raman - C.E.P.R. Discussion Papers - 2006

We study the effect of introducing a new security, such as a non-redundant derivative, on the volatility of stock … increases the volatility of stock-market returns. …

Persistent link: https://www.econbiz.de/10005114422

Too-Systemic-To-Fail: What Option Markets Imply About Sector-wide Government Guarantees

Kelly, Bryan; Lustig, Hanno; van Nieuwerburgh, Stijn - C.E.P.R. Discussion Papers - 2012

We examine the pricing of financial crash insurance during the 2007-2009 financial crisis in U.S. option markets. A large amount of aggregate tail risk is missing from the price of financial sector crash insurance during the financial crisis. The difference in costs of out-of-the-money put...

Persistent link: https://www.econbiz.de/10011083289

Carry

Koijen, Ralph; Moskowitz, Tobias J; Pedersen, Lasse Heje; … - C.E.P.R. Discussion Papers - 2013

, and volatility risks, its performance presents a challenge to asset pricing models. …

Persistent link: https://www.econbiz.de/10011083673

Option-Based Credit Spreads

Culp, Christopher L.; Nozawa, Yoshio; Veronesi, Pietro - C.E.P.R. Discussion Papers - 2014

Theoretically, corporate debt is economically equivalent to safe debt minus a put option on the firm’s assets. We empirically show that indeed portfolios of long Treasuries and short traded put options ("pseudo bonds") closely match the properties of traded corporate bonds. Pseudo bonds...

Persistent link: https://www.econbiz.de/10011145468

Demand-Based Option Pricing

Garleanu, Nicolae Bogdan; Pedersen, Lasse Heje; … - C.E.P.R. Discussion Papers - 2005

We model the demand-pressure effect on prices when options cannot be perfectly hedged. The model shows that demand pressure in one option contract increases its price by an amount proportional to the variance of the unhedgeable part of the option. Similarly, the demand pressure increases the...

Persistent link: https://www.econbiz.de/10005067592

Limits to Arbitrage and Hedging: Evidence from Commodity Markets

Acharya, Viral V; Lochstoer, Lars; Ramadorai, Tarun - C.E.P.R. Discussion Papers - 2009

We build an equilibrium model with commodity producers that are averse to future cash flow variability, and hedge using futures contracts. Their hedging demand is met by financial intermediaries who act as speculators, but are constrained in risk-taking. Increases (decreases) in producers’...

Persistent link: https://www.econbiz.de/10005016244

Understanding Index Option Returns

Broadie, Mark; Chernov, Mikhail; Johannes, Michael - C.E.P.R. Discussion Papers - 2007

the Black-Scholes model. Moreover, simple stochastic volatility models with no risk premia generate put returns across all … estimation risk. …

Persistent link: https://www.econbiz.de/10005661467

Insider Trading in Credit Derivatives

Acharya, Viral V; Johnson, Tim - C.E.P.R. Discussion Papers - 2005

Insider trading in the credit derivatives market has become a significant concern for regulators and participants. This paper attempts to quantify the problem. Using news reflected in the stock market as a benchmark for public information, we report evidence of significant incremental...

Persistent link: https://www.econbiz.de/10005666591

Improving Portfolio Selection Using Option-Implied Volatility and Skewness

DeMiguel, Victor; Plyakha, Yuliya; Uppal, Raman; … - C.E.P.R. Discussion Papers - 2010

weights, one needs to estimate for each stock its volatility, correlations with all other stocks, and expected return. Our … contained in the volatility risk premium and option-implied skewness increases substantially Sharpe ratios and certainty …

Persistent link: https://www.econbiz.de/10008530360