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Modeling the Impacts of Market Activity on Bid-Ask Spreads in the Option Market
Cho, Young-Hye - 1999
using transactions data. We propose a new market microstructure theory which we call derivative hedge theory, in which … volume as a measure of liquidity and supports the derivative hedge theory. Option market spreads are positively related to … spreads in the underlying market, again supporting our theory. However, option market duration does affect option market …
Persistent link: https://www.econbiz.de/10012471453
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Hedging Macroeconomic and Financial Uncertainty and Volatility
Dew-Becker, Ian - 2019
We study the pricing of uncertainty shocks using a wide-ranging set of options that reveal premia for macroeconomic risks. Portfolios hedging macro uncertainty have historically earned zero or even significantly positive returns, while those exposed to the realization of large shocks have earned...
Persistent link: https://www.econbiz.de/10012480268
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Disasters implied by equity index options
Backus, David - 2009
We use prices of equity index options to quantify the impact of extreme events on asset returns. We define extreme events as departures from normality of the log of the pricing kernel and summarize their impact with high-order cumulants: skewness, kurtosis, and so on. We show that high-order...
Persistent link: https://www.econbiz.de/10012463409
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Rare Disasters and Exchange Rates
Farhi, Emmanuel - 2008
We propose a new model of exchange rates, which yields a theory of the forward premium puzzle. Our explanation combines …
Persistent link: https://www.econbiz.de/10012464842
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Limited Arbitrage and Short Sales Restrictions : Evidence from the Options Markets
Ofek, Eli - 2003
behavioral finance theory that relies on over-optimistic investors in the stock market and segmentation between the stock and …
Persistent link: https://www.econbiz.de/10012469280
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On the Determinants of the Value of Call Options on Default-Free Bonds
Buser, Stephen A. - 1988
Models of interest-dependent claims that imply similar term structures and levels of interest rate volatility also produce similar estimates of bond option values. This result is established for simple option forms with known closed-form solutions as well as for more complex options that require...
Persistent link: https://www.econbiz.de/10012476537
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Embedded Leverage
Frazzini, Andrea - 2012
Many financial instruments are designed with embedded leverage such as options and leveraged exchange traded funds (ETFs). Embedded leverage alleviates investors' leverage constraints and, therefore, we hypothesize that embedded leverage lowers required returns. Consistent with this hypothesis,...
Persistent link: https://www.econbiz.de/10012460102
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Parametric Inference and Dynamic State Recovery from Option Panels
Andersen, Torben G. - 2012
We develop a new parametric estimation procedure for option panels observed with error which relies on asymptotic approximations assuming an ever increasing set of observed option prices in the moneyness- maturity (cross-sectional) dimension, but with a fixed time span. We develop consistent...
Persistent link: https://www.econbiz.de/10012460613
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Option-Implied Spreads and Option Risk Premia
Culp, Christopher L.; Gandhi, Mihir; Nozawa, Yoshio; … - National Bureau of Economic Research - 2021
We propose implied spreads (IS) and normalized implied spreads (NIS) as simple measures to characterize option prices. IS is the credit spread of an option's implied bond, the portfolio long a risk-free bond and short a put option. NIS normalizes IS by the risk-neutral default probability and...
Persistent link: https://www.econbiz.de/10012585425
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Heterogeneous-Expectations Model of the Value of Bonds Bearing Call Options
Bodie, Zvi - 1977
This paper develops a dynamic programming model of the optimal refunding strategy and the corresponding value of a callable bond. The model differs from previous work on this subject primarily in that it explicitly admits the possibility of differences between the issuer's expectations of future...
Persistent link: https://www.econbiz.de/10012478918