The Supply And Demand Of S P 500 Put Options
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The Supply And Demand Of S P 500 Put Options
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Author : George M. Constantinides
language : en
Publisher:
Release Date : 2015
The Supply And Demand Of S P 500 Put Options written by George M. Constantinides and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2015 with Economics categories.
We document that the implied volatility skew of S&P 500 index puts is non-decreasing in the disaster index and risk-neutral variance, contrary to the implications of a broad class of no-arbitrage models. The key to the puzzle lies in recognizing that, as the disaster risk increases, customers demand more puts as insurance while market makers become more credit-constrained in writing puts. The resulting increase in the equilibrium price is more pronounced in out-of-the-money than in-the-money puts, thereby steepening the implied volatility skew and resolving the puzzle. Consistent with the data, the model also implies that the equilibrium net buy of puts is decreasing in the disaster index, variance, and their price. The data shows a significant decreasing relationship between the IV skew and the net buy and no relationship in other periods, also explained by the model.
Trading And Hedging With S P 500 Options
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Author : Chicago Mercantile Exchange
language : en
Publisher:
Release Date : 1985
Trading And Hedging With S P 500 Options written by Chicago Mercantile Exchange and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 1985 with Hedging (Finance) categories.
S P 500
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Author :
language : en
Publisher:
Release Date : 1988
S P 500 written by and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 1988 with Stock index futures categories.
Can Standard Preferences Explain The Prices Of Out Of The Money S P 500 Put Options
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Author : Luca Benzoni
language : en
Publisher:
Release Date : 2005
Can Standard Preferences Explain The Prices Of Out Of The Money S P 500 Put Options written by Luca Benzoni and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2005 with Economics categories.
Prior to the stock market crash of 1987, Black-Scholes implied volatilities of S & P 500 index options were relatively constant across moneyness. Since the crash, however, deep out-of-the-money S & P 500 put options have become 'expensive' relative to the Black-Scholes benchmark. Many researchers (e.g., Liu, Pan and Wang (2005)) have argued that such prices cannot be justified in a general equilibrium setting if the representative agent has 'standard preferences' and the endowment is an i.i.d. process. Below, however, we use the insight of Bansal and Yaron (2004) to demonstrate that the 'volatility smirk' can be rationalized if the agent is endowed with Epstein-Zin preferences and if the aggregate dividend and consumption processes are driven by a persistent stochastic growth variable that can jump. We identify a realistic calibration of the model that simultaneously matches the empirical properties of dividends, the equity premium, the prices of both at-the-money and deep out-of-the-money puts, and the level of the risk-free rate. A more challenging question (that to our knowledge has not been previously investigated) is whether one can explain within a standard preference framework the stark regime change in the volatility smirk that has maintained since the 1987 market crash. To this end, we extend the model to a Bayesian setting in which the agent updates her beliefs about the average jump size in the event of a jump. Note that such beliefs only update at crash dates, and hence can explain why the volatility smirk has not diminished over the last eighteen years. We find that the model can capture the shape of the implied volatility curve both pre- and post-crash while maintaining reasonable estimates for expected returns, price-dividend ratios, and risk-free rates.
Options On S P 500 Futures
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Author :
language : en
Publisher:
Release Date : 1985
Options On S P 500 Futures written by and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 1985 with Commodity exchanges categories.
Pricing S P 500 Index Put Options
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Author : Robert L. Geske
language : en
Publisher:
Release Date : 2010
Pricing S P 500 Index Put Options written by Robert L. Geske and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2010 with categories.
The primary purpose of this paper is to examine whether leverage has a significant statistical and economic effect on the pricing of Samp;P 500 index put options. The secondary purpose is to present information regarding the shape and persistent smile rather than skew of the implied volatility function. This is the first paper to directly test for leverage effects in stock index put options. To analyze these effects we use the Geske (1979) compound option model. The Geske model is closed form, implies stochastic equity volatility, is consistent with Modigliani and Miller, incorporates debt refinancing, and includes possibly differential default and bankruptcy. Black-Scholes (1973) is a special case of the Geske model. In this paper we show that during the years 1996-2004 the aggregate market based debt to equity (D/E) ratio of the firms comprising the Samp;P 500 equity index varies from about 40-120 percent. We believe that we are the first to present a market D/E ratio derived from option theory. We also present evidence that on an average of about 200,000 options during this 8 year period the implied volatility most often exhibits a smile not a smirk or skew. Next and more importantly we are the first to report the details of the statistically significant economic effects that market leverage has on pricing Samp;P 500 index put options. We measure that the Geske model improves the net option valuation of listed in the money (or out of the money) Samp;P 500 index put options on average by about 37% (19%) compared to Black-Scholes values. We demonstrate that the improvement is directly (and monotonically) related to both the time to expiration of the option and the amount of leverage in this market index. For options with longer expirations and/or periods of higher market leverage the improvement is greater, ranging from about 50% to 85%. We also demonstrate economic significance in basis points by showing that dealers making a book in index options can expect benefits of at least several 100 basis points using Geske instead of Black-Scholes. Finally we show that the per cent pricing errors compare very favorably with Heston-Nandi (2000).
Option Income Strategy
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Author : TradeSign Algo
language : en
Publisher:
Release Date : 2019-08-16
Option Income Strategy written by TradeSign Algo and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2019-08-16 with categories.
Clear and precise mechanical techniques on how to structure option spreads while riding on the bullish biases of the equity markets in the long term. The reference index in particular CBOE SPX. No fanciful option risk modeling software required, because the model is based on directional trading system returns. Option Income takes advantage of time decay as an additional advantage to directional bias. You will know when to enter and how much risk and reward in each trade setup. This is unlike other option book, the principle is condensed into a simple and quick read within 1 hour of your time.
A Test Of Efficiency For The S P 500 Index Option Market Using Variance Forecasts
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Author : Jaesun Noh
language : en
Publisher:
Release Date : 1993
A Test Of Efficiency For The S P 500 Index Option Market Using Variance Forecasts written by Jaesun Noh and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 1993 with Stock exchanges categories.
To forecast future option prices, autoregressive models of implied volatility derived from observed option prices are commonly employed [see Day and Lewis (1990), and Harvey and Whaley (1992)]. In contrast, the ARCH model proposed by Engle (1982) models the dynamic behavior in volatility, forecasting future volatility using only the return series of an asset. We assess the performance of these two volatility prediction models from S&P 500 index options market data over the period from September 1986 to December 1991 by employing two agents who trade straddles, each using one of the two different methods of forecast. Straddle trading is employed since a straddle does not need to be hedged. Each agent prices options according to her chosen method of forecast, buying (selling) straddles when her forecast price for tomorrow is higher (lower) than today's market closing price, and at the end of each day the rates of return are computed. We find that the agent using the GARCH forecast method earns greater profit than the agent who uses the implied volatility regression (IVR) forecast model. In particular, the agent using the GARCH forecast method earns a profit in excess of a cost of $0.25 per straddle with the near-the-money straddle trading.
Mispricing Of Setp 500 Index Options
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Author :
language : en
Publisher:
Release Date : 2008
Mispricing Of Setp 500 Index Options written by and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2008 with categories.
Test Of The Put Call Parity Relation Using Options On Futures On The S P 500 Index
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Author : Urbi Garay
language : en
Publisher:
Release Date : 2008
Test Of The Put Call Parity Relation Using Options On Futures On The S P 500 Index written by Urbi Garay and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2008 with categories.
This paper investigates the put-call parity (PCP) relation using options on futures on the Standard and Poor's 500 (Samp;P 500) Index using daily closing options and futures prices between 2nd January and 31st December, 2001. Results obtained demonstrate that the inclusion of transaction costs on the model considerably reduces the number of times that a violation of the PCP relation occurs at the same time that it diminishes the magnitude of the distortion. Similarly, the PCP relation applies more accurately to those options that are the nearest to being at-the-money. When deep-out-of-the-money or deep-in-the-money options were used in the tests the number of violations increased. This may be the result of the low liquidity levels of these contracts. Finally, the authors verify in this study that when transaction costs -commision costs and bid-ask spreads on options and on futures- are included in the model, arbitrage opportunities are translated in the possibility of a gain well below $1,000 for an option contract on futures on the Samp;P 500. This amount does not represent an economically significant value, especially if it is considered that other factors such as taxes have not been considered in this paper. These results offer support to the efficient market theory.