M. Ammann, D. Skovmand, and M. Verhofen, “Implied and Realized Volatility in the Cross-Section of Equity Options,” (Working paper, University of St. Gallen, University of Aarhus, 1 November 2008).
Abstract: Using a complete sample of US equity options, we analyze patterns of implied volatility in the cross-section of equity options with respect to stock characteristics. We find that high-beta stocks, small stocks, stocks with a low-market-to-book ratio, and non-momentum stocks trade at higher implied volatilities after controlling for historical volatility. We find evidence that implied volatility overestimates realized volatility … Read More »
S.J. Taylor, P.K Yadav, and Y. Zhang, “The Information Content of Implied Volatilities and Model-free Volatility Expectations: Evidence from Options Written on Individual Stocks,” (Paper presented at the annual meeting of the Financial Management Association International, Grapevine, Texas, 8 – 11 October 2008).
S.J. Taylor, P.K Yadav, and Y. Zhang, “The Information Content of Implied Volatilities and Model-free Volatility Expectations: Evidence from Options Written on Individual Stocks,” (Paper presented at the annual meeting of the Financial Management Association International, Grapevine, Texas, 8 – 11 October 2008). DownloadRead More »
C. Bajlum and Peter Tind Larsen, “Capital Structure Arbitrage: Model Choice and Volatility Calibration,” (Copenhagen Business School and University of Aarhus, 13 July 2008).
Abstract: When identifying relative value opportunities across credit and equity markets, the arbitrageur faces two major problems, namely positions based on model misspecification and mismeasured inputs. Using credit default swap data, this paper addresses both concerns in a convergence-type trading strategy. In spite of differences in assumptions governing default and calibration, we find the exact structural model linking the markets … Read More »
M. Cremers and D. Weinbaum, “Deviations from Put-Call Parity and Stock Return Predictability,” (Paper presented at the European Conference of the Financial Management Association, Prague, 4 – 6 June 2008).
Abstract: Deviations from put-call parity contain information about future returns. Using the difference in implied volatility between pairs of call and put options to measure these deviations we find that stocks with relatively expensive calls outperform stocks with relatively expensive puts by 51 basis points per week. We find both positive abnormal performance in stocks with relatively expensive calls and … Read More »
P. Carr and L. Wu, “A Simple Robust Link between American Puts and Credit Insurance,” (Working paper, Bloomberg LP, New York University, and Baruch College, 7 May 2008).
Abstract: We develop a simple robust link between equity out-of-the-money American put options and a pure credit insurance contract on the same reference company. Assuming that the stock price stays above a barrier B>0 before default but drops and remains below a lower barrier ARead More »
Y. Plyakha and G.Vilkov, “Portfolio Policies with Stock Options,” (Goethe University Frankfurt, 8 May 2008).
Abstract: We study the partial equilibrium portfolio optimization problem for a myopic CRRA investor who can trade options on individual stocks. Applying the parametric portfolio approach of Brandt, Santa-Clara, and Valkanov (forthcoming) to derivatives, we show that options characteristics (such as implied volatility and IV smile skew) convey information about the mispricing in the option portfolios. We take the data … Read More »
P. Santa-Clara and S. Yan, “Crashes, Volatility, and the Equity Premium: Lessons from S&P500 Options,” (Working paper, Universidade Nova de Lisboa and University of South Carolina, May 2008).
P. Santa-Clara and S. Yan, “Crashes, Volatility, and the Equity Premium: Lessons from S&P500 Options,” (Working paper, Universidade Nova de Lisboa and University of South Carolina, May 2008). DownloadRead More »
G. Vilkov, “Variance Risk Premium Demystified,” (Working paper, Goethe University, 8 May 2008).
Abstract: We study the dynamics and cross-sectional properties of the variance risk premia embedded in options on stocks and indices, approximated by the synthetic variance swap returns. Several important stylized facts and contributions arise. First, variance risk premia for indices are systematically larger (more negative) than for individual securities. Second, there are systematic cross-sectional differences in the price of variance … Read More »
E. Szado and H. Kazemi, “Collaring the Cube: Protection Options for a QQQ ETF Portfolio,” (Working paper, April 2008).
Abstract: This article assesses the effectiveness of a long collar as a protective strategy. We examine the risk/return characteristics of a passive collar strategy on the Powershares QQQ trust exchange traded fund (Ticker: QQQQ) from March 1999 to March 2008 and find that, over this time period, a 6-month put/1-month call collar provides far superior returns to the buy and … Read More »
S. Asmussen, D. Madan, M. Pistorius, “Pricing Equity Default Swaps under an approximation to the CGMY Levy Model,” in the Cornell University Library, 2 February 2008.
Abstract: The Wiener-Hopf factorization is obtained in closed form for a phase type approximation to the CGMY Levy process. This allows, for the approximation, exact computation of first passage times to barrier levels via La place transform inversion. Calibration of the CGMY model to market option prices defines the risk neutral process for which we infer the first passage times … Read More »