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1.
We examine whether the dynamics of the implied volatility surface of individual equity options contains exploitable predictability patterns. Predictability in implied volatilities is expected due to the learning behavior of agents in option markets. In particular, we explore the possibility that the dynamics of the implied volatility surface of individual stocks may be associated with movements in the volatility surface of S&P 500 index options. We present evidence of strong predictable features in the cross-section of equity options and of dynamic linkages between the volatility surfaces of equity and S&P 500 index options. Moreover, time-variation in stock option volatility surfaces is best predicted by incorporating information from the dynamics in the surface of S&P 500 options. We analyze the economic value of such dynamic patterns using strategies that trade straddle and delta-hedged portfolios, and find that before transaction costs such strategies produce abnormal risk-adjusted returns.  相似文献   

2.
    
This paper explores the profitability of simple short-term cross-sectional trading strategies based on the implied volatility index (VIX), often referred to as an “investor fear gauge” in the stock market. These strategies involve holding sentiment-prone stocks when VIX is low and sentiment-immune stocks when VIX is high and generate significantly higher excess returns than the benchmark long–short portfolios that do not condition on VIX. We show that the profitability of our trading strategies is not subsumed by the well-known risk factors or transaction cost adjustments. Our findings are consistent with the theory of delayed arbitrage and the synchronization problem of Abreu and Brunnermeier (2002).  相似文献   

3.
    
Using the theoretical link between put options and credit default swaps (CDS) in a very general setting, we develop a robust measure of CDS implied volatility (CIV) that captures the information content of CDS markets. Specifically, we use the unit recovery claim to bridge CDS and deep out-of-the-money put options of the same firm and then back out CIV via the binomial tree. Our CIV measure strongly co-moves with the option implied volatility (OIV), with a correlation coefficient of 0.8. Based on the standardized difference between CIV and OIV, we construct CDS and option trading strategies. Without taking transaction costs into account, the long–short CDS trading strategy achieves an annualized return of 58.29% and a Sharpe ratio of 2.97, which cannot be explained by non-parametric skewness and volatility risk.  相似文献   

4.
Short selling exchange-traded funds (ETFs) has become a common means of speculating or hedging in response to pessimistic expectations about a specific market or sector, as the short interest of ETFs is more than 10 times that of individual stocks, on average. We determine that sector-based ETFs have an abnormally large short interest level, whereas international ETFs have an unusually small short interest level. The level of short interest is larger for ETFs that have a higher trading volume and a lower market capitalization, regardless of the type of ETF assessed. The level of short interest is lower for ETFs representing indexes that have tradable derivatives, but higher for international ETFs representing indexes that have tradable derivatives. We also determine that the level of short interest in an ETF serves as an effective signal of bearish sentiment when considering all ETFs, but is not an effective signal when isolating any particular type of ETF.
Jeff MaduraEmail:
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5.
    
The present paper addresses the problem of computing implied volatilities of options written on a domestic asset based on implied volatilities of options on the same asset expressed in a foreign currency and the exchange rate. It proposes an original method together with explicit formulae to compute the at-the-money implied volatility, the smile's skew, convexity, and term structure for short maturities. The method is completely free of any model specification or Markov assumption; it only assumes that jumps are not present. We also investigate how the method performs on the particular example of the currency triplet dollar, euro, yen. We find a very satisfactory agreement between our formulae and the market at one week and one month maturities.  相似文献   

6.
This paper introduces measures of volatility and jump risk that are based on individual stock options to explain credit spreads on corporate bonds. Implied volatilities of individual options are shown to contain useful information for credit spreads and improve on historical volatilities when explaining the cross-sectional and time-series variation in a panel of corporate bond spreads. Both the level of individual implied volatilities and (to a lesser extent) the implied-volatility skew matter for credit spreads. Detailed principal component analysis shows that a large part of the time-series variation in credit spreads can be explained in this way.  相似文献   

7.
    
Standard delta hedging fails to exactly replicate a European call option in the presence of transaction costs. We study a pricing and hedging model similar to the delta hedging strategy with an endogenous volatility parameter for the calculation of delta over time. The endogenous volatility depends on both the transaction costs and the option strike prices. The optimal hedging volatility is calculated using the criterion of minimizing the weighted upside and downside replication errors. The endogenous volatility model with equal weights on the up and down replication errors yields an option premium close to the Leland [J. Finance, 1985 Leland, HE. 1985. Option pricing and replication with transaction costs. J. Finance, 40: 12831301. [Crossref], [Web of Science ®] [Google Scholar], 40, 1283–1301] heuristic approach. The model with weights being the probabilities of the option's moneyness provides option prices closest to the actual prices. Option prices from the model are identical to the Black–Scholes option prices when transaction costs are zero. Data on S&P 500 index cash options from January to June 2008 illustrate the model.  相似文献   

8.
The skew effect in market implied volatility can be reproduced by option pricing theory based on stochastic volatility models for the price of the underlying asset. Here we study the performance of the calibration of the S&P 500 implied volatility surface using the asymptotic pricing theory under fast mean-reverting stochastic volatility described in [8]. The time-variation of the fitted skew-slope parameter shows a periodic behaviour that depends on the option maturity dates in the future, which are known in advance. By extending the mathematical analysis to incorporate model parameters which are time-varying, we show this behaviour can be explained in a manner consistent with a large model class for the underlying price dynamics with time-periodic volatility coefficients.Received: December 2003, Mathematics Subject Classification (2000): 91B70, 60F05, 60H30JEL Classification: C13, G13Jean-Pierre Fouque: Work partially supported by NSF grant DMS-0071744.Ronnie Sircar: Work supported by NSF grant DMS-0090067. We are grateful to Peter Thurston for research assistance.We thank a referee for his/her comments which improved the paper.  相似文献   

9.
    
Tests of the expectations hypothesis reveal that the slope of the VIX futures term structure predicts the direction but not the magnitude of the evolution of the short-end of the curve, but predicts neither the direction nor the magnitude of short-term changes in the long-end of the curve. Relative value seeking spread trades, constructed to exploit such violations, deliver excess returns with annualized Sharpe ratios equal or greater than those of volatility-writing strategies deployed by VIX ETN's for a majority of the 32 spread trade combinations tested. I demonstrate that profits from beta-neutral variations of the spread trades, which are not compensation for taking on equity downside risk by design, are propagated by inflows of capital into VIX futures markets, after controlling for factors that measure changes in the availability of hedge fund capital, risk appetite, and momentum. At the heart of profits, and by extension the term structure anomalies, is a disproportionally elevated basis propagated by long VIX demand that enters the futures market through ETN channels.  相似文献   

10.
This study examines the performance of the S&P 100 implied volatility as a forecast of future stock market volatility. The results indicate that the implied volatility is an upward biased forecast, but also that it contains relevant information regarding future volatility. The implied volatility dominates the historical volatility rate in terms of ex ante forecasting power, and its forecast error is orthogonal to parameters frequently linked to conditional volatility, including those employed in various ARCH specifications. These findings suggest that a linear model which corrects for the implied volatility's bias can provide a useful market-based estimator of conditional volatility.  相似文献   

11.
    
In a follow up to a previous paper where a model was presented for intra-day volume dynamics, we use wavelet decomposition for model parameter estimation. We run Monte-Carlo simulations of the model with these estimated parameters and compare with observed volume curves. This model in its calibrated form can be used for various execution strategies, e.g. in estimation of potential slippage deviations from VWAP benchmarks.  相似文献   

12.
We examine the information content of option and equity volumes when trade direction is unobserved. In a multimarket asymmetric information model, equity short-sale costs result in a negative relation between relative option volume and future firm value. In our empirical tests, firms in the lowest decile of the option to stock volume ratio (O/S) outperform the highest decile by 0.34% per week (19.3% annualized). Our model and empirics both indicate that O/S is a stronger signal when short-sale costs are high or option leverage is low. O/S also predicts future firm-specific earnings news, consistent with O/S reflecting private information.  相似文献   

13.
    
Based on a unique data set, this paper examines the pricing of equity-linked structured products in the German market. The daily closing prices of a large variety of structured products are compared to theoretical values derived from the prices of options traded on the Eurex (European Exchange). For the majority of products, the study reveals large implicit premiums charged by the issuing banks in the primary market. A set of driving factors behind the issuers’ pricing policies is identified, for example, underlying and type of implicit derivative(s). For the secondary market, the product life cycle is found to be an important pricing parameter.  相似文献   

14.
15.
In this paper, as a generalization of the Black–Scholes (BS) model, we elaborate a new closed-form solution for a uni-dimensional European option pricing model called the J-model. This closed-form solution is based on a new stochastic process, called the J-process, which is an extension of the Wiener process satisfying the martingale property. The J-process is based on a new statistical law called the J-law, which is an extension of the normal law. The J-law relies on four parameters in its general form. It has interesting asymmetry and tail properties, allowing it to fit the reality of financial markets with good accuracy, which is not the case for the normal law. Despite the use of one state variable, we find results similar to those of Heston dealing with the bi-dimensional stochastic volatility problem for pricing European calls. Inverting the BS formula, we plot the smile curve related to this closed-form solution. The J-model can also serve to determine the implied volatility by inverting the J-formula and can be used to price other kinds of options such as American options.  相似文献   

16.
Financial markets embed expectations of central bank policy into asset prices. This paper compares two approaches that extract a probability density of market beliefs. The first is a simulated moments estimator for option volatilities described in [Mizrach, B., 2002. When Did the Smart Money in Enron Lose Its’ Smirk? Rutgers University Working Paper #2002-24]; the second is a new approach developed by [Haas, M., Mittnik, S., Paolella, M.S., 2004a. Mixed normal conditional heteroskedasticity, J. Financial Econ. 2, 211–250] for fat-tailed conditionally heteroskedastic time series. In an application to the 1992–1993 European Exchange Rate Mechanism crises, we find that both the options and the underlying exchange rates provide useful information for policy makers.  相似文献   

17.
    
I investigate the relationship between past managerial guidance and realized variance risk premiums (VRPs) – i.e., the difference between implied and realized variance – in equity options around earnings announcements. I find that implied variances are lower before earnings announcements but VRPs are higher when firms provide guidance. I also find higher option-implied jump risk when firms issue surprising guidance. Further tests suggest a portion of the higher VRPs are due to changes in perceived higher-order risks, but traders also underreact to the precision of information in short-term guidance. These results are attenuated for firms with a better information environment.  相似文献   

18.
In the presence of jump risk, expected stock return is a function of the average jump size, which can be proxied by the slope of option implied volatility smile. This implies a negative predictive relation between the slope of implied volatility smile and stock return. For more than four thousand stocks ranked by slope during 1996–2005, the difference between the risk-adjusted average returns of the lowest and highest quintile portfolios is 1.9% per month. Although both the systematic and idiosyncratic components of slope are priced, the idiosyncratic component dominates the systematic component in explaining the return predictability of slope. The findings are robust after controlling for stock characteristics such as size, book-to-market, leverage, volatility, skewness, and volume. Furthermore, the results cannot be explained by alternative measures of steepness of implied volatility smile in previous studies.  相似文献   

19.
This paper investigates the role of the size factor for constructing investment portfolios and proposes a dynamic extension that accommodates the risk-free asset and time-varying weights. These weights are determined by a set of state variables given by the term structure of sovereign interest rates, variables describing market risk aversion such as the VIX index and the CRB Industrial return, and indexes reflecting investor sentiment towards the economic outlook. The empirical section explores the suitability of these state variables and analyses the out-of-sample performance of size factors idiosyncratic to the US, the UK and European financial markets that are compared against the dynamic version that optimizes the weights in each period. The results provide support to the different size factors except for periods of economic distress in which the optimal dynamic strategies are clearly superior.  相似文献   

20.
    
In this paper we address the problem of the valuation of Bermudan option derivatives in the framework of multi-factor interest rate models. We propose a solution in which the exercise decision entails a properly defined series expansion. The method allows for the fast computation of both a lower and an upper bound for the option price, and a tight control of its accuracy, for a generic Markovian interest rate model. In particular, we show detailed computations in the case of the Bond Market Model. As examples we consider the case of a zero coupon Bermudan option and a coupon bearing Bermudan option; in order to demonstrate the wide applicability of the proposed methodology we also consider the case of a last generation payoff, a Bermudan option on a CMS spread bond.  相似文献   

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