Option Coskewness and Capital Asset Pricing |
| |
Authors: | Vanden Joel M |
| |
Institution: | Tuck School of Business, Dartmouth College |
| |
Abstract: | This article shows how the market coskewness model of Rubinstein(1973) and Kraus and Litzenberger (1976) is altered when a nonredundantcall option is optimally traded. Owing to the optionsnonredundancy, the economys stochastic discount factor(SDF) depends not only on the market return and the square ofthe market return but also on the option return, the squareof the option return, and the product of the market and optionreturns. This leads to an asset pricing model in which the expectedreturn on any risky asset depends explicitly on the assetscoskewness with option returns. The empirical results show thatthe option coskewness model outperforms several competing benchmarkmodels. Furthermore, option coskewness captures some of thesame risks as the FamaFrench factors small minus big(SMB) and high minus low (HML). These results suggest that thefactors that drive the pricing of nonredundant options are alsoimportant for pricing risky equities.(JEL G11, G12, D61) |
| |
Keywords: | |
本文献已被 Oxford 等数据库收录! |
|