Option-Implied Term Structures
نویسندگان
چکیده
منابع مشابه
Option-Implied Term Structures
The illiquidity of long-maturity options has made it difficult to study the term structures of option spanning portfolios. This paper proposes a new estimation and inference framework for these option-implied term structures that addresses long-maturity illiquidity. By building a sieve estimator around the risk-neutral valuation equation, the framework theoretically justifies (fattailed) extrap...
متن کاملSupplement to: Option-Implied Term Structures
1. Choose μ(Z) and σ(Z). To center expanions around Black-Scholes, use (3.17). 2. Construct P (β,Z) from Proposition 1. 3. Choose Kn = (Ky(n) + 1)(Kτ (n) + 1) to grow slowly as n→∞. See Remark 5.1 in Section 5. 4. Optimize the objective function over sieve coefficients in (3.10), using all options from a given cross-section of options. 5. Form V̂n using (B.8) and use critical values from standar...
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This paper investigates the relationship between the slope of the implied volatility (IV) term structure and future option returns. In Fama-Macbeth regressions we demonstrate that implied volatility slopes are positively correlated with future returns on short-term at-the-month straddles. A strategy that buys straddles with high IV slopes and short sells straddles with low IV slopes returns sev...
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We use cross-sectional information on the prices of G10 currency options to calibrate a non-Gaussian model of pricing kernel dynamics and construct estimates of conditional currency risk premia. We find that the mean historical returns to short dollar and carry factors (HMLFX ) are statistically indistinguishable from their option-implied counterparts, which are free from peso problems. Skewnes...
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The Black–Scholes* option pricing model is commonly applied to value a wide range of option contracts. However, the model often inconsistently prices deep in-the-money and deep out-of-the-money options. Options professionals refer to this well-known phenomenon as a volatility ‘skew’ or ‘smile’. In this paper, we examine an extension of the Black–Scholes model developed by Corrado and Su‡ that s...
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ژورنال
عنوان ژورنال: SSRN Electronic Journal
سال: 2014
ISSN: 1556-5068
DOI: 10.2139/ssrn.2541954