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Sawyer, Kim R. - 2017

This paper constructs a new theory of social networks based on the options individuals buy on each other. The model assumes that when an individual connects with another it is equivalent to buying options on the other's reputation. The option model confers advantages not present in existing...

Persistent link: https://www.econbiz.de/10012960595

Stock Return Predictability : Consider Your Open Options

Farazmand, Farhang - 2019

Investors' views, expressed in individual securities, when averaged are informative about the future path of aggregate market returns. Our predictor of the market, PC-OI, is an average of traders' positions in options on individual stocks, formed simply by summing the put open interest across...

Persistent link: https://www.econbiz.de/10012901530

Discrete-Time Quadratic Hedging of Barrier Options in Exponential Lévy Model

Černý, Aleš - 2019

We examine optimal quadratic hedging of barrier options in a discretely sampled exponential Lévy model that has been realistically calibrated to reflect the leptokurtic nature of equity returns. Our main finding is that the impact of hedging errors on prices is several times higher than the...

Persistent link: https://www.econbiz.de/10012903524

Information Content of Right Option Tails : Evidence from S&P 500 Index Options (Preprint)

Orosi, Greg - 2019

In this study, we investigate how useful the information content of out-of-the-money S&P 500 index call options is to predict the size and direction of the underlying index for the period 2004-2013. First, we demonstrate that behavior of the right tail of the option implied risk-neutral...

Persistent link: https://www.econbiz.de/10012903899

The Benefits of Option Use by Mutual Funds

Natter, Markus - 2019

Based on comprehensive regulatory data on equity mutual fund option use from the SEC's N-SAR filings, we are the first to present consistent evidence that equity funds' option use generates higher risk-adjusted performance. We further show that this is a direct effect of option use and not an...

Persistent link: https://www.econbiz.de/10012904706

Portfolios of American Options Under General Preferences : Results and Counterexamples

Henderson, Vicky - 2019

We consider the optimal exercise of a portfolio of American call options in an incomplete market. Options are written on a single underlying asset but may have different characteristics of strikes, maturities and vesting dates.Our motivation is to model the decision faced by an employee who is...

Persistent link: https://www.econbiz.de/10012905941

Optimal Dynamic Hedging of Equity Options : Residual-Risks, Transaction-Costs, & Conditioning

Petrelli, Andrea - 2019

-performance; (4) impact of conditioning hedging strategy on realized volatility. The asset returns are addressed by the General Auto … results in a realistic term-structure of the fat-tails, dynamic-asymmetry, and clustering of volatility. The relationship …-hedger. Tail-risk measures are shown to diminish by conditioning the hedging strategy and valuation on realized volatility. The …

Persistent link: https://www.econbiz.de/10012906140

A New Stopping Time and American Options Model : A Solution to the Free-Boundary Problem

Alghalith, Moawia - 2019

Persistent link: https://www.econbiz.de/10012906241

Option Strangles : An Analysis of Selling Equity Insurance

Kownatzki, Clemens - 2019

Our results suggest, selling SPY strangles are generally profitable across a variety of widths. However, the payoff profile of a short option strangle exposes the contract seller to a potential for unlimited losses. Our evidence on maximum draw-downs indicates that losses on some positions can...

Persistent link: https://www.econbiz.de/10012895043

Forgive, or Award Your Debtor? A Barrier Option Approach

Sun, David S. - 2019

This study presents a model of sovereign debt with an embedded Down-and-In Put (DIP). Our model focuses more on the perspective of a debtor, while taking the creditor's behavior into consideration. The findings suggest that debt forgiveness is more effective than repayment award or default...

Persistent link: https://www.econbiz.de/10012897940