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Risk-neutral valuation is used to value a portfolio and decompose it into the components accruing to its stakeholders. The analysis incorporates managers' expected performance and contract renewal issues. A managed portfolio's economic value is shown to differ from its net asset value. A better...
Persistent link: https://www.econbiz.de/10012998046
modeling permits access to skewness via randomized drifts. Optimal portfolios maximize a conservative market value seen as a …
Persistent link: https://www.econbiz.de/10013004140
We show that idiosyncratic jumps are a key determinant of mean stock returns from both an ex post and ex ante perspective. Ex post, the entire annual average return of a typical stock accrues on the four days on which its stock price jumps. Ex ante, idiosyncratic jump risk earns a premium: a...
Persistent link: https://www.econbiz.de/10012967984
We develop a firm valuation model with repeated expansion and contraction options to show operating profitability is a … proxy for time-varying systematic risk. Relative to riskier assets, the proportionate value of contraction options increase …
Persistent link: https://www.econbiz.de/10013026825
I show that the inventory risk faced by market-makers has a first-order effect on option prices. I introduce a simple approach that decomposes the price impact of trades into inventory risk and asymmetric information components. While both components are large for option trades, the inventory...
Persistent link: https://www.econbiz.de/10013037472
strike price and expiration date matched put and call options and capture price pressures in the option market. During a two …-day earnings announcement window, the abnormal returns to the quintile that includes stocks with relatively expensive call options … put options. This result is robust after measuring volatility spreads in alternative ways and controlling for firm …
Persistent link: https://www.econbiz.de/10013039227
Speculators who wish to bet on higher future volatility often purchase options to “go long volatility.” Should … investors who buy options expect to profit when realized volatility increases? If so, under what conditions? To answer these … questions, we conduct an analysis of the relationship between long volatility performance (buying options) and contemporaneous …
Persistent link: https://www.econbiz.de/10012911343
We consider the risk neutral valuation of fixed term securities lending in a multi-curve framework, taking into account the forward basis of each component of the transaction relative to the discount curve, including basis between currencies. We show that a convexity adjustment arises from the...
Persistent link: https://www.econbiz.de/10012891103
Using hand-collected data of commodity futures contracts going back to 1877, we replicate in the pre-sample history the well-documented cross-sectional commodity factor premia of momentum, value and basis. All three premia remain significantly positive in the additional 80-plus years of...
Persistent link: https://www.econbiz.de/10012892589
In an empirical study of Standard & Poor's 500 index options, this paper analyses the predictability of future market …
Persistent link: https://www.econbiz.de/10013234246