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This paper improves continuous-time variance swap approximation formulas to derive exact returns on benchmark VIX option portfolios. The new methodology preserves the variance swap interpretation that decomposes returns into realized variance and option implied-variance.We apply this new...
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Conventional financial theory considers ex-ante that risk, generally measured by the volatility, has to be …
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including out-of-the-money options or delta-hedging the returns. Unlike stock momentum, option return continuation is not … volatility and other characteristics. Across stocks, trading costs are unrelated to the magnitude of momentum profits …
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We show that options written on stocks with low prices are over-priced. This effect is robust to a variety of tests, controlling for common stock- and option- risk characteristics, and to reasonable transaction costs. Natural experiments corroborate this finding; options tend to become...
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