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I empirically investigate whether macroeconomic uncertainty is a priced risk factor in the cross-section of equity and index option returns. The analysis employs a non-linear factor model, estimated with the Fama-MacBeth methodology, where the macroeconomic uncertainty factor is the return on a...
Persistent link: https://www.econbiz.de/10013097881
We study whether prices of traded options contain information about future extreme market events. Our option-implied conditional expectation of market loss due to tail events, or tail loss measure, predicts future market returns, magnitude, and probability of the market crashes, beyond and above...
Persistent link: https://www.econbiz.de/10010226098
straddles; second, we estimate the PVR in a Heston (1993) stochastic-volatility model. In both cases, the estimation is … more negative and its term structure is steeper when volatility is high. These findings are inconsistent with calibrations …
Persistent link: https://www.econbiz.de/10011303715
between stock returns and idiosyncratic return volatility at the firm level. By allowing for the volatility of the underlying … idiosyncratic choice variables to exhibit independent switches between a high and low volatility regime, we show that the options …' constant expected returns are composed of (i) a state dependent drift term that relates positively with the volatility regime …
Persistent link: https://www.econbiz.de/10013109188
significant price jump component in variance swap rates. A model-based analysis shows that investors' willingness to ensure … against volatility risk increases after a market drop. This effect is stronger for short horizons and more persistent for long …
Persistent link: https://www.econbiz.de/10011899885
Persistent link: https://www.econbiz.de/10011377526
Supported by empirical examples, this paper provides a theoretical analysis on the impacts of using a suboptimal information set for the estimation of the empirical pricing kernel and, more in general, for the validity of the fundamental theorems of asset pricing. While inferring the...
Persistent link: https://www.econbiz.de/10011506352
Traditional plain vanilla options can be regarded as options on a simple return. These options have convex payoffs and as a consequence of Jensen's inequality, their prices are increasing as a function of maturity in the absence of interest rate. This makes long dated call options as excessively...
Persistent link: https://www.econbiz.de/10012847399
volatility. In the model, consistent with survey evidence, following positive (negative) stock returns, investors expect future … returns to be higher (lower) but also less (more) volatile. The biased volatility expectation introduces a new channel through …
Persistent link: https://www.econbiz.de/10012850367
We study the predictive power of option-implied moment risk premia embedded in theconventional variance risk premium. We find that while the second moment risk premiumpredicts market returns in short horizons with positive coefficients, the third (fourth)moment risk premium predicts market...
Persistent link: https://www.econbiz.de/10012852912