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What option prices tell us about the ECB's unconventional monetary policies
Olijslagers, Stan; Petersen, Annelie; Vette, Nander de; … - 2018
We use a series of different approaches to extract information about crash risk from option prices for the Euro-Dollar exchange rate, with each step sharpening the focus on extracting more specific measures of crash risk around dates of ECB measures of Unconventional Monetary Policy. Several...
Persistent link: https://www.econbiz.de/10011940034
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Tractable rare disaster probability and options-pricing
Barro, Robert J.; Liao, Gordon Y. - 2019
We derive an option-pricing formula from recursive preference and estimate rare disaster probability. The new options-pricing formula applies to far-out-of-the money put options on the stock market when disaster risk dominates, the size distribution of disasters follows a power law, and the...
Persistent link: https://www.econbiz.de/10012182396
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Printing Away the Mortgages : Fiscal Inflation and the Post-Covid Boom
Diamond, William F.; Landvoigt, Tim; Sánchez, Germán … - National Bureau of Economic Research - 2024
We analyze the impact of fiscal and monetary stimulus in an economy with mortgage debt, where inflation redistributes … inflation, increasing consumption demand and house prices. The power of fiscal stimulus grows when borrowers are more indebted …. We then show quantitatively that transfers followed by easy monetary policy cause a surge in inflation which helps …
Persistent link: https://www.econbiz.de/10014576602
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The price of the smile and variance risk premia
Gruber, Peter H.; Tebaldi, Claudio; Trojani, Fabio - 2015 - This version: September 8, 2015
In a tractable stochastic volatility model, we identify the price of the smile as the price of the unspanned risks traded in SPX option markets. The price of the smile reflects two persistent volatility and skewness risks, which imply a downward sloping term structure of low-frequency variance...
Persistent link: https://www.econbiz.de/10011412294
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Explaining Asset Pricing Puzzles Associated with the 1987 Market Crash
Benzoni, Luca - 2011
The 1987 market crash was associated with a dramatic and permanent steepening of the implied volatility curve for equity index options, despite minimal changes in aggregate consumption. We explain these events within a general equilibrium framework in which expected endowment growth and economic...
Persistent link: https://www.econbiz.de/10013133957
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The Predictive Power of S&P 500 Option Prices and the Stock Market Crash of 2008-2009
Sfiridis, James M. - 2012
Option market prices have often been regarded as a window on investor sentiment about the future price behavior of the underlying asset. Such prices can be very different from model prices and have long been noted by implied volatility plots revealing “smiles” or “smirks”. In this paper...
Persistent link: https://www.econbiz.de/10013116037
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Rare Macro Disasters in Credit and Option Markets
Du, Du - 2012
We show that the slight possibility of a macroeconomic disaster of moderate magnitude can explain important features across credit, option, and equity markets. Our consumption-based equilibrium model captures the empirical level and volatility of credit spreads, generates a flexible credit term...
Persistent link: https://www.econbiz.de/10013109094
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Pricing and Hedging Variance Swaps on a Swap Rate
Rheinlaender, Deimante - 2013
We solve the pricing and hedging problem for the generic variance swap on a swap rate. The solution is not limited to a specifc swap rate model approximation. In order to address the absence of arbitrage constraints and to preserve the model complexity, we develop an alternative approach to swap...
Persistent link: https://www.econbiz.de/10013087764
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The Performance of Popular Stochastic Volatility Option Pricing Models During the Subprime Crisis
Moyaert, Thibaut - 2016
Using daily options prices on the Eurostoxx 50 stock index over the whole year 2008, we compare the performance of three popular stochastic volatility models (Heston, 1993; Bates, 1996; Heston and Nandi, 2'007, in addition to the traditional Black-Scholes model and a proprietary trading desk model. We...
Persistent link: https://www.econbiz.de/10013000731
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Do Rare Events Explain CDX Tranche Spreads?
Seo, Sang Byung - 2020
We investigate whether a model with time-varying probability of economic disaster can explain prices of collateralized debt obligations. We focus on senior tranches of the CDX, an index of credit default swaps on investment grade firms. These assets do not incur losses until a large fraction of...
Persistent link: https://www.econbiz.de/10012855138