Research
Discover the latest research papers written by OptionMetrics,
our customers, and researchers worldwide leveraging
OptionMetrics data.
C. S. Jensen and E. Lazarus: The Cyclicality of Risk and Risk Premia
We consider and reexamine the properties of the market risk premium and variance over the business cycle. While it is well known that the risk premium and variance both increase in recessions, we find that the risk premium is less ... Read More
Z. Fan, B. Han, and L. Lu: Expected Return or Mispricing? Evidence from the Term Structure of Option-implied Disagreement
We study the term structure of option-implied investor disagreement about future market returns. We document two key patterns: (1) in the cross-section, the term structure of disagreement is generally downward sloping, and (2) in the time series, disagreement does not ... Read More
P. B. Hsieh: A Forward-Looking Index of Market Variance
This paper proposes a forward-looking index as a measure of market variance. We establish a theoretical foundation for this index and demonstrate that it can be constructed in a timely manner using a set of options currently available in the ... Read More
C. O’Sullivan and T. Post: Improved Option-Implied Estimates of Relative Risk Aversion and Market Risk Premium
We propose a refined method to estimate the conditional aggregate Relative Risk Aversion coefficient from equity index option prices. The estimated coefficient is used to translate risk-neutral distribution moments into physical moments, with a focus on forecasting realized returns through ... Read More
S. Yang, W. Liu, and I. Garrett: Option Valuation Using Macroeconomic Uncertainty: A Realized Volatility Approach
How does macroeconomic uncertainty affect the pricing of derivatives for an underlying asset? To address this question, we extend the Heterogeneous Autoregressive Gamma (HARG) model with a Mixed Data Sampling (MIDAS) filter, allowing macroeconomic uncertainty to influence equity volatility movements ... Read More
I. Assani, M. Augustyniak, A. Badescu, J.-F. Bégin, and L. Stentoft: Discrete-time hedging, basis risk, and covariance-dependent pricing kernels
Basis risk arises when hedging a financial derivative with an instrument different from its underlying asset. This risk can significantly impair hedging effectiveness and must therefore be properly managed. This article develops a discrete-time hedging framework for European-style derivatives that ... Read More
Highlighted Research
Reducing Risk through Multifactors: Implied Variance Asymmetry and Implied Beta
By G. DeSimone & O. Shih
February 15, 2024
OptionMetrics' latest study challenges conventional risk assessment using metrics like implied variance asymmetry (IVA), calculated as the measure of downside variance relative to upside variance, and option-implied beta strategies.