Jumps and the Correlation Risk Premium: Evidence from Equity Options

2019 ◽  
Author(s):  
Nicole Branger ◽  
René Marian Flacke ◽  
Frederik T. Middelhoff
Keyword(s):  
Risk Premium ◽  
Equity Options ◽  
Correlation Risk

scholarly journals The Price of Correlation Risk: Evidence from Equity Options

2009 ◽  
Vol 64 (3) ◽  
pp. 1377-1406 ◽  
Author(s):  
JOOST DRIESSEN ◽  
PASCAL J. MAENHOUT ◽  
GRIGORY VILKOV
Keyword(s):  
Equity Options ◽  
Correlation Risk

Is There a Risk Premium in the Stock Lending Market? Evidence from Equity Options

2016 ◽  
Author(s):  
Dmitriy Muravyev ◽  
Neil D. Pearson ◽  
Joshua Matthew Pollet
Keyword(s):  
Risk Premium ◽  
Equity Options

Is There a Risk Premium in the Stock Lending Market? Evidence from Equity Options

2016 ◽  
Author(s):  
Dmitriy Muravyev ◽  
Neil D. Pearson ◽  
Joshua Matthew Pollet
Keyword(s):  
Risk Premium ◽  
Equity Options

scholarly journals Asymmetric Volatility Risk: Evidence from Option Markets*

2018 ◽  
Vol 23 (4) ◽  
pp. 777-799 ◽  
Author(s):  
Jens Jackwerth ◽  
Grigory Vilkov
Keyword(s):  
Risk Premium ◽  
Option Prices ◽  
Index Options ◽  
Option Markets ◽  
Volatility Risk ◽  
Asymmetric Volatility ◽  
Risk Neutral ◽  
Correlation Risk ◽  
Marginal Risk ◽  
Implied Correlation

Abstract Asymmetric volatility concerns the relation of returns to future expected volatility. Much is known from option prices about the marginal risk-neutral distributions (RNDs) of S&P 500 returns and of relative changes in future expected volatility (VIX). While the bivariate RND cannot be inferred from the marginals, we propose a novel identification based on long-dated index options. We estimate the risk-neutral asymmetric volatility implied correlation (AVIC) and find it to be significantly lower than its realized counterpart. We interpret the economics of the asymmetric volatility correlation risk premium and use AVIC to predict returns, volatility, and risk-neutral quantities.

scholarly journals Dispersion trading: an empirical analysis on the S&P 100 options

2019 ◽  
Vol 16 (1) ◽  
pp. 178-188 ◽  
Author(s):  
Pierpaolo Ferrari ◽  
Gabriele Poy ◽  
Guido Abate
Keyword(s):  
Empirical Analysis ◽  
Risk Premium ◽  
Stock Options ◽  
Options Market ◽  
Free Lunch ◽  
Back Testing ◽  
Market Inefficiency ◽  
Dispersion Trading ◽  
The Us ◽  
Correlation Risk

This study provides an empirical analysis back-testing the implementation of a dispersion trading strategy to verify its profitability. Dispersion trading is an arbitrage-like technique based on the exploitation of the overpricing of index options, especially index puts, relative to individual stock options. The reasons behind this phenomenon have been traced in literature to the correlation risk premium hypothesis (i.e., the hedge of correlations drifts during market crises) and the market inefficiency hypothesis. This study is aimed at evaluating whether dispersion trading can be implemented with success, with a focus on the Standard & Poor’s 100 options. The risk adjusted return of the strategy used in this empirical analysis has beaten a buy-and-hold alternative on the S&P 100 index, providing a significant over-performance and a low correlation with the stock market. The findings, therefore, provide an evidence of inefficiency in the US options market and the presence of a form of “free lunch” available to traders focusing on options mispricing.

scholarly journals The Price of Correlation Risk: Evidence from Equity Options

2006 ◽  
Author(s):  
Joost Driessen ◽  
Pascal J. Maenhout ◽  
Grigory Vilkov
Keyword(s):  
Equity Options ◽  
Correlation Risk
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