Download or read book Mispricing of SetP 500 Index Options written by and published by . This book was released on 2008 with total page 48 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book A Nonlinear Factor Analysis of S P 500 Index Option Returns written by Christopher S. Jones and published by . This book was released on 2001 with total page 38 pages. Available in PDF, EPUB and Kindle. Book excerpt: This study confronts the growing evidence that multiple sources of priced risk appear necessary to explain the expected returns of equity index options. A general class of nonlinear latent factor models is estimated using a data set of over 32,000 daily return observations on Samp;P 500 index put options of varying maturity and moneyness. The results show that while priced factors other than the return on the underlying security contribute to these expected returns, factor-based models are insufficient to explain their magnitude. For a variety of option classes, but particularly short-term out-of-the-money puts, the magnitude of the mispricing remains large. Out-of-sample tests confirm the usefulness of the semiparametric latent factor approach in hedging a book of put options and in forming portfolios that exploit apparent option mispricing.
Download or read book Mispriced Index Option Portfolios written by George M. Constantinides and published by . This book was released on 2017 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: The optimal portfolio of a utility-maximizing investor trading in the S&P 500 index and cash, subject to proportional transaction costs, becomes stochastically dominated when overlaid with a zero-net-cost portfolio of S&P 500 options bought at their ask and written at their bid price in most months over 1990-2013. Dominance is prevalent when the ATM-IV is high, right skew is low, and option maturity is short. The portfolios include mostly calls and positions are overwhelmingly short. Similar results obtain with options on the CAC and DAX indices. The results are explained neither by priced factors nor a non-monotonic stochastic discount factor.
Download or read book Option Income Strategy written by TradeSign Algo and published by . This book was released on 2019-08-16 with total page 28 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.
Download or read book Efficiency in Index Options Markets and Trading in Stock Baskets written by Lucy F. Ackert and published by . This book was released on 2014 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Researchers have reported mispricing in index options markets. This study further examines the efficiency of the Samp;P 500 index options market by testing theoretical pricing relationships implied by no-arbitrage conditions. The effect of a traded stock basket, Standard and Poor's Depository Receipts (SPDRs), on the link between index and options markets is also examined. Pricing efficiency within options markets improves, and the evidence supports the hypothesis that a stock basket enhances the connection between markets. However, when transactions costs and short sales constraints are included, very few violations of the pricing relationships are reported.
Download or read book Can Standard Preferences Explain the Prices of Out of the Money S P 500 Put Options written by Luca Benzoni and published by . This book was released on 2005 with total page 62 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.
Download or read book Pricing S P 500 Index Options Using a Hilbert Space Basis written by Peter Albert Abken and published by . This book was released on 1996 with total page 41 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Spider Options and the S P 500 Index Options Market written by Gunther Capelle-Blancard and published by . This book was released on 2011 with total page 50 pages. Available in PDF, EPUB and Kindle. Book excerpt: Using daily closing options data for the January 01, 2004 to June 30, 2005 period, we examine if the listing of Spider options on January 10, 2005 had any major impact on the quoted bid-ask spread, volume and implied volatility pattern of the Samp;P 500 Index options. Based on regression-based measures proposed in this paper, we find the call spread and volume to shrink, and the put spread and volume to rise, leading to a minor net volume decline in total. Consequently, index put transaction cost rises for the investors and the market makers enjoy a boost in revenue while the CBOE's fee revenue perhaps suffers a little. Considering spread and volume effects, the liquidity implication is uncertain. Pricing of the Samp;P 500 Index options is not affected as the implied volatility pattern remains largely in tact.
Download or read book Finance written by Frank J. Fabozzi and published by John Wiley & Sons. This book was released on 2009-05-13 with total page 832 pages. Available in PDF, EPUB and Kindle. Book excerpt: FINANCE Financial managers and investment professionals need a solid foundation in finance principles and applications in order to make the best decisions in today's ever-changing financial world. Written by the experienced author team of Frank Fabozzi and Pamela Peterson Drake, Finance examines the essential elements of this discipline and makes them understandable to a wide array of individuals, from seasoned professionals looking to fine-tune their financial skills to newcomers seeking genuine guidance through the dynamic world of finance. Divided into four comprehensive parts, this reliable resource opens with an informative introduction to the basic tools of investing and financing decision-making financial mathematics and financial analysis (Part I). From here, you'll become familiar with the fundamentals of capital market theory, including financial markets, financial intermediaries, and regulators of financial activities (Part II). You'll also gain a better understanding of interest rates, bond and stock valuation, asset pricing theory, and derivative instruments in this section. Part III moves on to detail decision-making within a business enterprise. Topics touched upon here include capital budgeting that is, whether or not to invest in specific long-lived projects and capital structure. Management of current assets and risk management are also addressed. By covering the basics of investment decision-making, Part IV skillfully wraps up this accessible overview of finance. Beginning with the determination of an investment objective, this part proceeds to demonstrate portfolio theory and performance evaluation, and also takes the time to outline techniques for managing equity and bond portfolios as well as discuss the best ways to use derivatives in the portfolio management process. Filled with in-depth insights and practical advice, Finance puts this field in perspective. And while a lot of ground is covered in this book, this information will help you appreciate and understand the complex financial issues that today's companies and investors constantly face.
Download or read book Restrictions on Short selling and Mispricing of Index Options Contracts written by Joseph K. W. Fung and published by . This book was released on 1997 with total page 21 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Does Skewness Matter Evidence from the Index Options Market written by Madhu Kalimipalli and published by . This book was released on 2003 with total page 30 pages. Available in PDF, EPUB and Kindle. Book excerpt: Current research on stock returns indicates that neglecting conditional skewness may bias inferences about risk. In this paper, we examine if time-varying skewness in asset returnsexplains option mispricing. We model the temporal properties of the first three moments of asset returns, and devise trading rules that use skewness forecasts to trade delta-neutralstrips, straps and straddles using at-the-money Samp;P 500 index options. We find that changes in skewness are priced in the index option markets. Our findings are robust to two conditional skewness specifications, two option-pricing models, trading costs and filters. Our results suggest that time varying skewness in the underlying asset returns could be viewed as an alternative explanation to the jump-risk argument to explain option mispricing.
Download or read book Day Trading For Dummies written by Ann C. Logue and published by John Wiley & Sons. This book was released on 2011-05-04 with total page 362 pages. Available in PDF, EPUB and Kindle. Book excerpt: In an ever-changing market, get the advantage of trading for yourself Day trading is undoubtedly the most exciting way to make your own money. Before you begin, you need three things: patience, nerves of steel, and a well-thumbed copy of Day Trading For Dummies?the low-risk way to find out whether day trading is for you. This plain-English guide shows you how day trading works, identifies its all-too-numerous pitfalls, and gets you started with an action plan. From classic and renegade strategies to the nitty-gritty of daily trading practices, it gives you the knowledge and confidence you'll need to keep a cool head, manage risk, and make decisions instantly as you buy and sell your positions. Advice on choosing an online broker Updated examples reflect current market and economic conditions and the latest information on SEC rules and regulations (and tax laws) Other titles by Logue: Hedge Funds For Dummies, Socially Responsible Investing For Dummies, and Emerging Markets For Dummies Read Day Trading For Dummies and get the tips, guidance, and solid foundation you need to succeed in this thrilling, lucrative, and rewarding career!
Download or read book On the relative pricing of long maturity S P 500 index options and CDX tranches written by Pierre Collin Dufresne and published by . This book was released on 2010 with total page 36 pages. Available in PDF, EPUB and Kindle. Book excerpt: We investigate a structural model of market and firm-level dynamics in order to jointly price long-dated S & P 500 options and tranche spreads on the five-year CDX index. We demonstrate the importance of calibrating the model to match the entire term structure of CDX index spreads because it contains pertinent information regarding the timing of expected defaults and the specification of idiosyncratic dynamics. Our model matches the time series of tranche spreads well, both before and during the financial crisis, thus offering a resolution to the puzzle reported by Coval, Jurek and Stafford (2009).
Download or read book Information Content of Right Option Tails written by Greg Orosi and published by . This book was released on 2019 with total page 18 pages. Available in PDF, EPUB and Kindle. Book excerpt: In this study, we investigate how useful the information content of out-of-the-money S&P 500 index call options is to predict the size and direction of the underlying index for the period 2004-2013. First, we demonstrate that behavior of the right tail of the option implied risk-neutral distribution can be characterized by a single parameter. Subsequently, we find that weekly changes in the tail parameter can be used to devise trading strategies that significantly outperform the underlying index on a risk adjusted basis. Moreover, we demonstrate that even during a period when the strategies do not outperform the index, our approach can be used to obtain information about future index returns. NOTE: This is a preprint. The published version contains significantly more details about the performance of the trading strategies, and it is shown that tail parameter contains forward looking information about the direction of the underlying index. In addition, some minor mistakes have been fixed.
Download or read book Mispricing of Index Futures Contracts written by Joseph K. W. Fung and published by . This book was released on 1996 with total page 26 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book The Journal of Derivatives written by and published by . This book was released on 2007 with total page 788 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book How Bad Will the Potential Economic Disasters Be Evidences from S P 500 Index Options Data written by Du Du and published by . This book was released on 2008 with total page 65 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper proposes a new methodology of using the Samp;P 500 index option data to gauge the magnitudes of the potential economic disasters in the U.S. with a setup incorporating a small-probability consumption jump and habit formation. The estimated economic disasters strike once every 36-64 years in the form of 13.5-17.6% consumption contractions, which induce 36-56% stock market crashes. These results are much more in line with the empirical observations than those estimated with Peso problem models in which habit formation is ignored. The setup also explains a wide variety of the observed pricing features of both options and stocks.
