Download or read book The Effects of Leverage on the Pricing S P 500 Index Call Options written by Robert L. Geske and published by . This book was released on 2009 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: The purpose of this paper is to examine whether leverage has a significant statistical and economic effect on the pricing of Samp;P 500 index options. This is the first paper to directly test for leverage effects in stock index 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 this is the first presentation of a market D/E ratio derived from option theory. 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 call 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 call options on average by about 35% (28%) 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 40% to 80%. 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.

Download or read book Pricing S P 500 Index Put Options written by Robert L. Geske and published by . This book was released on 2010 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: 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).

Download or read book Lifecycle Investing written by Ian Ayres and published by ReadHowYouWant.com. This book was released on 2010-05 with total page 358 pages. Available in PDF, EPUB and Kindle. Book excerpt: Diversification provides a well-known way of getting something close to a free lunch: by spreading money across different kinds of investments, investors can earn the same return with lower risk (or a much higher return for the same amount of risk). This strategy, introduced nearly fifty years ago, led to such strategies as index funds. What if we were all missing out on another free lunch that’s right under our noses? InLifecycle Investing, Barry Nalebuff and Ian Ayres-two of the most innovative thinkers in business, law, and economics-have developed tools that will allow nearly any investor to diversify their portfolios over time. By using leveraging when young-a controversial idea that sparked hate mail when the authors first floated it in the pages ofForbes-investors of all stripes, from those just starting to plan to those getting ready to retire, can substantially reduce overall risk while improving their returns. InLifecycle Investing, readers will learn How to figure out the level of exposure and leverage that’s right foryou How the Lifecycle Investing strategy would have performed in the historical market Why it will work even if everyone does it Whennotto adopt the Lifecycle Investing strategy Clearly written and backed by rigorous research,Lifecycle Investingpresents a simple but radical idea that will shake up how we think about retirement investing even as it provides a healthier nest egg in a nicely feathered nest.

Download or read book Pricing Efficiency in the Long term Index Options Market written by Anuradha Kandikuppa and published by . This book was released on 1999 with total page 250 pages. Available in PDF, EPUB and Kindle. Book excerpt:

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 Leveraged Exchange Traded Funds written by Peter Miu and published by Springer. This book was released on 2016-04-29 with total page 174 pages. Available in PDF, EPUB and Kindle. Book excerpt: Leveraged Exchange-Traded Funds (LETFs) are publicly-traded funds that promise to provide daily returns that are in a multiple (positive or negative) of the returns on an index. To meet that promise, the funds use leverage, which is typically obtained through derivatives such as futures contracts, forward contracts, and total-return swaps. As of the end of 2012, there were over 250 LETFs in North America with total assets of approximately $32.24 billion. While the amount of assets held by these funds is still small, their popularity continues to grow as their trading volume is significantly larger and much more dynamic than traditional, non-leveraged ETFs. This comprehensive guide to LETFs provides high-level practitioners and researchers with a detailed reference tool for navigating the market and making informed investment decisions. Written from a measured analytical perspective, Miu and Charupat use clear and concise explanations of all important aspects of LETFs, focusing on such key elements as structure, pricing, performance, regulations, taxation, and trading strategies. The first two chapters set the stage for the book by identifying exactly what LETFs are and how they are regulated. The following chapters then look to bridge theory with practice to dive deep into the mechanics, portfolio rebalancing techniques, and daily compounding effects that make investing in these funds so lucrative.

Download or read book Options on Futures written by John F. Summa and published by John Wiley & Sons. This book was released on 2002-01-04 with total page 328 pages. Available in PDF, EPUB and Kindle. Book excerpt: Increased marketplace volatility and the expanding size of capital markets have led to an explosion of interest in options on futures. What makes these instruments so attractive is that they allow traders to profit from movements in the markets using little up-front capital and plenty of leverage. At the same time, they provide an excellent hedge against the risks associated with capital market investments. This book demystifies these notoriously difficult-to-understand instruments and provides state-of-the-art strategies and tools for making the most of options on futures. John F. Summa (New Haven, CT) is a CTA and cofounder of OptionsNerd.com, an online service providing market commentary, trading advisories, and assistance with trading system development. Jonathan Lubow (Randolph, NJ) is cofounder and Vice President of Trader's Edge, a futures and options brokerage.

Download or read book The World Scientific Handbook of Futures Markets written by Anastasios G. E. T. Al MALLIARIS and published by World Scientific. This book was released on 2015-08-06 with total page 844 pages. Available in PDF, EPUB and Kindle. Book excerpt: "The World Scientific Handbook of Futures Markets serves as a definitive source for comprehensive and accessible information in futures markets. The emphasis is on the unique characteristics of futures markets that make them worthy of a special volume. In our judgment, futures markets are currently undergoing remarkable changes as trading is shifting from open outcry to electronic and as the traditional functions of hedging and speculation are extended to include futures as an alternative investment vehicle in traditional portfolios. The unique feature of this volume is the selection of five classic papers that lay the foundations of the futures markets and the invitation to the leading academics who do work in the area to write critical surveys in a dozen important topics."--$cProvided by publisher.

Download or read book Option Implied Risk Neutral Distributions and Risk Aversion written by Jens Carsten Jackwerth and published by . This book was released on 2008 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Trading and Hedging with S P 500 Options written by Chicago Mercantile Exchange and published by . This book was released on 1985 with total page 24 pages. Available in PDF, EPUB and Kindle. Book excerpt:

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 58 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book The Financial Crisis and the Behavior of S P 500 Index Option Prices written by Mo Chaudhury and published by . This book was released on 2015 with total page 48 pages. Available in PDF, EPUB and Kindle. Book excerpt: Stronger volatility skew and smile effects accompanied by a risk-neutral distribution that is closer to the Normal seem unconventional at first thought. But that is what we find during the financial crisis, with the unconventionally high risk-neutral volatility level playing a major role. Additionally, the term structure of implied volatility became inverted (negatively sloped) during the crisis, driven by the inversion of the term structure of risk-neutral volatility and by the rise in the shorter term unconditional volatility. The term structures of risk-neutral skewness and kurtosis appear relatively flat with only negligible change during the crisis. The scale and its term structure rather than the shape factors of the unconditional risk neutral distribution to maturity thus appear more important for the structure of crisis time option prices.

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 The Options Playbook written by Brian Overby and published by . This book was released on 2007 with total page 101 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Capturing the Index Effect via Options written by Srikant Dash and published by . This book was released on 2019 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: We analyze a less-known but profound impact of additions to the Samp;P 500 - the impact on publicly traded options of the added company. Our analysis sheds new light into the enormous magnitude of index change related price movements in the options market, and provides insights on replicable trading strategies. In general, the changes in at-the-money call and put prices are 20 to 30 times higher than changes in the corresponding stock price. Comparison between the inter-index transfers and outside additions finds far greater index effect on options prices if the underlying stocks are introduced out of the Samp;P 1500 index family. Between announcement and effective dates, the median at-the-money call option rises 120% for additions from outside the Samp;P 1500, and 32% for promotions within the Samp;P index family. While it is not possible to capture most of these price changes because they happen very shortly after the announcement, our study highlights replicable trading strategies with statistically significant returns. Buying at-the-money calls for stocks added to Samp;P 500 from outside the Samp;P 1500 on the day after the announcement, and selling the position on the effective date of addition yields returns of 31% on average.

Download or read book A Benchmark Approach to Quantitative Finance written by Eckhard Platen and published by Springer Science & Business Media. This book was released on 2006-10-28 with total page 704 pages. Available in PDF, EPUB and Kindle. Book excerpt: A framework for financial market modeling, the benchmark approach extends beyond standard risk neutral pricing theory. It permits a unified treatment of portfolio optimization, derivative pricing, integrated risk management and insurance risk modeling. This book presents the necessary mathematical tools, followed by a thorough introduction to financial modeling under the benchmark approach, explaining various quantitative methods for the fair pricing and hedging of derivatives.

Download or read book Enhanced Indexing Strategies written by Tristan Yates and published by John Wiley & Sons. This book was released on 2008-12-03 with total page 304 pages. Available in PDF, EPUB and Kindle. Book excerpt: Leveraged index investments, including index futures, options, and ETFs, are one of the fastest growing products in finance, as both retail and institutional investors are attracted to their long-term returns and capital efficiency. With Enhanced Indexing Strategies, author Tristan Yates reveals how you can create and build high-performance indexing strategies using derivatives that can potentially generate much higher returns than conventional index investing. In addition, Enhanced Indexing Strategies introduces six innovative long-term indexing strategies using futures and options, each with its own advantages and applications.