Monotonicity of the Stochastic Discount Factor and Expected Option Returns

2009 ◽  
Author(s):  
Ranadeb Chaudhuri ◽  
Mark D. Schroder
Keyword(s):  
Discount Factor ◽  
Stochastic Discount Factor ◽  
Option Returns ◽  
Expected Option Returns

Hedge Fund Strategies, PerformanceDiversification: A Portfolio Theory & Stochastic Discount Factor Approach

2021 ◽  
pp. 101000
Author(s):  
David Newton ◽  
Emmanouil Platanakis ◽  
Dimitrios Stafylas ◽  
Charles Sutcliffe ◽  
Xiaoxia Ye
Keyword(s):  
Hedge Fund ◽  
Portfolio Theory ◽  
Discount Factor ◽  
Stochastic Discount Factor

scholarly journals Expected Option Returns

2001 ◽  
Vol 56 (3) ◽  
pp. 983-1009 ◽  
Author(s):  
Joshua D. Coval ◽  
Tyler Shumway
Keyword(s):  
Option Returns ◽  
Expected Option Returns

Volatility and Expected Option Returns

2019 ◽  
Vol 55 (3) ◽  
pp. 1025-1060 ◽  
Author(s):  
Guanglian Hu ◽  
Kris Jacobs
Keyword(s):  
Stock Returns ◽  
Expected Return ◽  
Cross Sectional ◽  
Stock Volatility ◽  
Option Returns ◽  
Put Option ◽  
Expected Stock Returns ◽  
Alternative Measures ◽  
Expected Option Returns ◽  
Equity Option

We analyze the relation between expected option returns and the volatility of the underlying securities. The expected return from holding a call (put) option is a decreasing (increasing) function of the volatility of the underlying. These predictions are supported by the data. In the cross section of equity option returns, returns on call (put) option portfolios decrease (increase) with underlying stock volatility. This finding is not due to cross-sectional variation in expected stock returns. It holds in various option samples with different maturities and moneyness, and is robust to alternative measures of underlying volatility and different weighting methods.

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