Option-Implied Term Structures

نویسنده

  • Erik Vogt
چکیده

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) extrapolations beyond truncated strikes and between observed maturities while remaining nonparametric. New confidence intervals quantify the term structure estimation error. The framework is applied to estimating the term structure of the variance risk premium and finds that a short-run component dominates market excess return predictability.

برای دانلود متن کامل این مقاله و بیش از 32 میلیون مقاله دیگر ابتدا ثبت نام کنید

ثبت نام

اگر عضو سایت هستید لطفا وارد حساب کاربری خود شوید

منابع مشابه

Measuring Systematic Risk Using Implied Beta in Option Prices

This paper provides a novel method to estimate β thoroughly based on option prices. Through combining the market model and the multivariate risk-neutral valuation relationship in Stapleton and Subrahmanyam (1984) and Câmara (2003), we develop a pricing model for individual stock options involving the volatility of the market index level and the levels of the β and the idiosyncratic risk of the ...

متن کامل

Implied Volatility Smirk

This paper studies implied volatility smirk quantitatively. We first propose a new concept of smirkness, which is defined as a triplet of at-the-money implied volatility, skewness (slope at the money) and smileness (curvature at the money) of implied volatility – moneyness curve. The moneyness is the logarithm of the strike price over the forward price, normalized by the standard deviation of e...

متن کامل

Linearity-Generating Processes, Unspanned Stochastic Volatility, and Interest-Rate Option Pricing

We propose to use the linearity-generating framework to accommodate the evidence of unspanned stochastic volatility: Variations in implied volatilities on interest-rate options such as caps and swaptions are independent of the variations on the interest rate term structure. Under this framework, bond valuation depends only on the transition dynamics of interest-rate factors, but not on their vo...

متن کامل

Implied Volatility: Statics, Dynamics, and Probabilistic Interpretation

Given the price of a call or put option, the Black-Scholes implied volatility is the unique volatility parameter for which the Bulack-Scholes formula recovers the option price. This article surveys research activity relating to three theoretical questions: First, does implied volatility admit a probabilistic interpretation? Second, how does implied volatility behave as a function of strike and ...

متن کامل

The term structure of equity option implied volatility

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...

متن کامل

ذخیره در منابع من


  با ذخیره ی این منبع در منابع من، دسترسی به آن را برای استفاده های بعدی آسان تر کنید

برای دانلود متن کامل این مقاله و بیش از 32 میلیون مقاله دیگر ابتدا ثبت نام کنید

ثبت نام

اگر عضو سایت هستید لطفا وارد حساب کاربری خود شوید

عنوان ژورنال:

دوره   شماره 

صفحات  -

تاریخ انتشار 2014