E. Bayraktar, “Pricing Options on Defaultable Stocks,” Cornell University Library, 21 December 2007.
Abstract: We develop stock option price approximations for a model which takes both the risk of default and the stochastic volatility into account. We also let the intensity of defaults be influenced by the volatility. We show that it might be possible to infer the risk neutral default intensity from the stock option prices. Our option price approximation has a … Read More »
Y. Zhou, “Pricing Individual Stock Options on Firms with Leverage,” (Seminar paper, Anderson Graduate School of Management at UCLA, 20 November 2007).
Y. Zhou, “Pricing Individual Stock Options on Firms with Leverage,” (Seminar paper, Anderson Graduate School of Management at UCLA, 20 November 2007). DownloadRead More »
J.S. Doran, D. Jiang, and D.R. Peterson, “Short-Sale Constraints and the Non-January Idiosyncratic Volatility Puzzle,” Munich Personal RePEc Archive, no. 4995, posted 7 November 2007).
Abstract: Using event studies, we show that short-sale constraints play an important role in the negative relation between idiosyncratic volatility and stock returns. We explore three exogenous events that change short-sale constraints: the IPO lockup period expiration, option introduction, and the recent short-selling ban on financial stocks. Following mitigation of short-sale constraints from the first two events, high idiosyncratic volatility … Read More »
M. le Roux, “A Long-Term Model of the Dynamics of the S&P500 Implied Volatility Surface,” North American Actuarial Journal 11, no. 4 (October 2007).
Abstract: In this paper we present an econometric model of implied volatilities of S&P500 index options. First, we model the dynamics the CBOE VIX index as a proxy for the general level of implied volatilities. We then describe a parametric model of the implied volatility surface for options with a term of up to two years. We show that almost … Read More »
D. Horn, E. Schneider, and G. Vilkov, “Hedging Options in the Presence of Microstructural Noise,” (Working paper, Goethe University-Frankfurt, 26 September 2007).
Abstract: In order to use an option pricing model for dynamic hedging an investor will have to calibrate it to a cross-section of option prices. Microstructural noise in option prices results in a set of indistinguishable parametrizations which may give rise to different hedging errors. In our simulation study for the Heston (1993) model, we identify the parameters most important … Read More »
A.B. Ashcraft and J.A.C. Santos, “Has the development of the structured credit market affected the cost of corporate debt?” Federal Reserve Bank of New York Staff Reports 290, July 2007.
Abstract: There have been widespread claims that credit derivatives such as the credit default swap (CDS) have lowered the cost of firms’ debt financing by creating for investors new hedging opportunities and information. However, these instruments also give banks an opaque means to sever links to their borrowers, thus reducing lender incentives to screen and monitor. In this paper, we … Read More »
E. Eberlein and D.B. Madan, “Sato Processes and the Valuation of Structured Products,” (Working paper, University of Freiburg and Robert H. Smith School of Business, 3 July 2007).
Abstract: We report on the adequacy of using Sato processes to value equity structured products. In models used to price options on realized variance,the latter must be a random variable with a positive variance. An analysis of this variance of realized variance for Sato processes shows that these processes may be suited to option contracts on realized volatility. Nonlinear pricing … Read More »
P. Gagliardini, C. Gourieroux, and E. Renault, “Efficient Derivative Pricing by Extended Method of Moments,” (Working paper, Swiss Finance Institute, University of Toronto, and University of North Carolina, May 2007).
Abstract: This paper extends GMM and information theoretic estimation to settings where the conditional moment restrictions are either uniform (i.e. valid for any value of the conditioning variable), or local (i.e. valid for a particular value of the conditioning variable only). The parameter of interest can be either a structural parameter, or a local conditional moment. This is the framework … Read More »
J. Conrad, R.F. Dittmar, and E. Ghysels, “Skewness and the Bubble,” (Working conference paper, University of North Carolina and University of Michigan, 16 April 2007).
Abstract: Motivated by the Internet bubble in the late 1990’s and early years of this century, we explore the possibility that higher moments of the returns distribution may be important in explaining security returns. Using a sample of option prices from 1996-2005, we estimate individual securities’ volatility, skewness and kurtosis using the method of Bakshi, Kapadia and Madan(2003). We find … Read More »
A. Berndt and A. Ostrovnaya, “Information Flow Between Credit Default Swap, Option and Equity Markets,” (Seminar paper, Carnegie Mellon University, 15 March 2007).
Abstract: This paper measures the contribution of the credit default swap (CDS) mar-ket to price discovery relative to equity and equity option markets. We provide a rigorous analysis of whether and to what extent the credit market acquires information prior to the option market, and vice versa. Our results indicate that investors absorb information revealed in the CDS market into … Read More »