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Bailey, Warren; Zheng, Lin; Zhou, Yinggang - 2022

We study minute-by-minute behavior of the VIX index and trading activity in the underlying S&P 500 options to understand the impact of macro and microeconomic forces on risk neutral volatility. VIX often increases with macroeconomic news, reflects the credibility of Fed monetary stimulus, and...

Persistent link: https://www.econbiz.de/10013292369

Higher Moment Risk Premiums for the Crude Oil Market : A Downside and Upside Conditional Decomposition

Da Fonseca, José - 2017

Relying on options written on the USO, an exchange traded fund tracking the daily price changes of the WTI light sweet crude oil, we extract variance and skew risk premiums in a model-free way. We further decompose these risk premiums into downside and upside conditional components and show that...

Persistent link: https://www.econbiz.de/10012966894

Bear Beta or Speculative Beta?—Reconciling the Evidence on Downside Risk Premium

Wang, Tong - 2022

-return relationship. Applying this method to the bear risk factor proposed by Lu and Murray (2019) reveals that the negative correlation …

Persistent link: https://www.econbiz.de/10013305706

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

Option-Implied Information : What's the Vol Surface Got to Do With It?

Ulrich, Maxim - 2019

We find that option-implied information such as forward-looking variance, skewness and the variance risk premium are sensitive to the way the volatility surface is constructed. For some state-of-the-art volatility surfaces, the differences are economically surprisingly large and lead to...

Persistent link: https://www.econbiz.de/10012899227

Common Factors in Equity Option Returns

Horenstein, Alex R. - 2020

This paper studies the factor structure of the cross-section of delta-hedged equity option returns. We ﬁnd that a four-factor model explains the cross-section and time-series of equity option returns. Out of the four factors, three are characteristic based factors from the long-short option...

Persistent link: https://www.econbiz.de/10012850798

Default Risk and Option Returns

Vasquez, Aurelio - 2020

This paper studies the effects of default risk on equity option returns. We show that there is a cross-sectional and a time-series relation between default risk and option returns. In the cross-section, expected delta-hedged equity option returns have a negative relation with default risk...

Persistent link: https://www.econbiz.de/10012855973

The Correlation Risk Premium : International Evidence

Faria, Gonçalo - 2018

In this paper we carry out the first cross-country analysis of the correlation risk premium. We examine the statistical … properties of the implied and realized correlation in European equity markets and relate the resulting premium to the US equity … market correlation risk and a global correlation risk premium. We find evidence of strong co-movement of correlation risk …

Persistent link: https://www.econbiz.de/10012908567

Characterizing the Variance Risk Premium : The Role of the Leverage Effect

Hu, Guanglian - 2019

A substantial portion of the variation in the market variance risk premium can be explained by the conditional covariance between the market return and its variance, which we refer to as the leverage effect. This finding holds at different data frequencies and for various sample periods, and it...

Persistent link: https://www.econbiz.de/10012898570

Predicting the equity market with option implied variables

Prokopczuk, Marcel; Tharann, Björn; Wese Simen, Chardin - 2017

returns and realized variance. The correlation risk premium (CRP) emerges as a strong predictor of both excess returns and …

Persistent link: https://www.econbiz.de/10011751188