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Author: James Stephen Doran
Publisher:
ISBN:
Category : Gas industry
Languages : en
Pages :
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Book Description
Author: James Stephen Doran
Publisher:
ISBN:
Category : Gas industry
Languages : en
Pages :
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Book Description
Author: Robert A. Schwartz
Publisher: Springer Science & Business Media
ISBN: 1441914749
Category : Business & Economics
Languages : en
Pages : 152
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Book Description
Volatility is very much with us in today's equity markets. Day-to-day price swings are often large and intra-day volatility elevated, especially at market openings and closings. What explains this? What does this say about the quality of our markets? Can short-period volatility be controlled by better market design and a more effective use of electronic technology? Featuring insights from an international array of prominent academics, financial markets experts, policymakers and journalists, the book addresses these and other questions concerning this timely topic. In so doing, we seek deeper knowledge of the dynamic process of price formation, and of the market structure and regulatory environment within which our markets function. The Zicklin School of Business Financial Markets Series presents the insights emerging from a sequence of conferences hosted by the Zicklin School at Baruch College for industry professionals, regulators, and scholars. Much more than historical documents, the transcripts from the conferences are edited for clarity, perspective and context; material and comments from subsequent interviews with the panelists and speakers are integrated for a complete thematic presentation. Each book is focused on a well delineated topic, but all deliver broader insights into the quality and efficiency of the U.S. equity markets and the dynamic forces changing them.
Author: Melissa Mielkie
Publisher:
ISBN:
Category :
Languages : en
Pages : 23
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Book Description
To bridge the gap between the output of theoretical option pricing models and observed option prices on exchanges, it is necessary to price the volatility risk inherent in financial markets. Non zero market risk premia have been found in previous financial literature through an exploration of market data, quantifying the relationship between implied and realized volatility. Building upon previous work by Mielkie and Davison (2013) where an approximate solution was derived for options written on underlying assets with regime-switching volatility, we analyze the impact of the market price of volatility risk on theoretical option prices. Using financially intuitive constraints, we prove the necessity of placing restrictions on the market prices of volatility risk in order to get reasonable option prices. In particular, we show that negative state-dependent market prices of volatility risk are necessary in order for the option prices and corresponding hedge ratios to be financially rational. An exploration of the regime-switching option prices and their implied volatilities is given, as well as numerical results and intuition supporting our mathematical proofs.
Author: Antoine Petrus Cornelius van der Ploeg
Publisher: Rozenberg Publishers
ISBN: 9051705778
Category :
Languages : en
Pages : 358
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Book Description
Author: Jared Woodard
Publisher: Pearson Education
ISBN: 0132756129
Category : Business & Economics
Languages : en
Pages : 49
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Book Description
Master the new edge in options trades: the hidden volatility risk premium that exists in options for every major asset class. One of the most exciting areas of recent financial research has been the study of how the volatility implied by option prices relates to the volatility exhibited by their underlying assets. Here, I’ll explain the concept of the volatility risk premium, present evidence for its presence in options on every major asset class, and show how to estimate, predict, and trade on it....
Author: Mark Watson
Publisher: Oxford University Press
ISBN: 0199549494
Category : Business & Economics
Languages : en
Pages : 432
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Book Description
A volume that celebrates and develops the work of Nobel Laureate Robert Engle, it includes original contributions from some of the world's leading econometricians that further Engle's work in time series economics
Author: James Doran
Publisher:
ISBN:
Category :
Languages : en
Pages : 32
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Book Description
In this paper we demonstrate the need for a negative market price of volatility risk to recover the difference between Black-Scholes (1973)/Black (1976) implied volatility and realized term volatility. Initially, using quasi-Monte Carlo simulation, we demonstrate numerically that a negative market price of volatility risk is the key risk premium in explaining the disparity between risk-neutral and statistical volatility in both equity and commodity-energy markets. This is robust to multiple specifications that also incorporate jumps. Next, using futures and options data from natural gas, heating oil and crude oil contracts over a ten year period, we estimate the volatility risk premium and demonstrate that the premium is negative and significant for all three commodities. Additionally, there appear distinct seasonality patterns for natural gas and heating oil, where winter/withdrawal months have higher volatility risk premiums. Computing such a negative market price of volatility risk highlights the importance of volatility risk in understanding priced volatility in these financial markets.
Author: Marek Raczko
Publisher:
ISBN:
Category :
Languages : en
Pages : 43
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Author: Andrea Buraschi
Publisher:
ISBN:
Category :
Languages : en
Pages : 46
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Rubinstein (1994) shows evidence of a significant time pattern in the shape of the volatility smile after the crash of 1987 and proposes an implied binomial tree approach to overcome the empirical limitations of the Black and Scholes model. This approach, and more generally the class of generalized deterministic volatility models, is based on the assumption that the local volatility of the underlying asset is a known function of time and of the path and level of the underlying asset price. In these economies, options are redundant assets. We use this observation as a testable restriction and ask three questions. First, is the observed dynamics of the smile consistent with deterministic volatility models? Second, if volatility is stochastic, so that two assets cannot dynamically complete the market, is volatility also priced and if so how important is to model explicitly the price of volatility in the design of risk management strategies? We address this question by testing if the returns on the underlying and on at-the-money options span the asset prices in the economy or if we need additional information from returns on other options or the riskfree rate. Third, are there any differences in the spanning properties of the option market before and after the 1987 market crash?We cast these questions in terms of martingale restrictions on the pricing kernel and conduct tests based on daily Samp;P500 index options data from April 1986--December 1995. All our tests suggest that both in- and out-of-the-money options are needed for spanning purposes. This finding is even stronger in the postcrash period and suggests that returns on away-from-the-money options are driven by at least one additional economic factor compared to returns on at-the-money options. This finding is inconsistent with the implications of deterministic volatility models based on generalized deterministic volatility. The finding is consistent with explanations of the smile in which volatility is stochastic and priced in equilibrium and with models in which away-from-the-money options are used in equilibrium by a different specialized clientele, such as portfolio insurers, subject to different budget constraints and/or portfolio objectives than the typical investor in at-the-money options.
Author: Zhaogang Song
Publisher:
ISBN:
Category :
Languages : en
Pages : 48
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Book Description
Using both S&P 500 option and recently introduced VIX option prices, we study pricing kernels and their dependence on multiple volatility factors. We first propose nonparametric estimates of marginal pricing kernels, conditional on the VIX and the slope of the variance swap term structure. Our estimates highlight the state-dependence nature of the pricing kernels. In particular, conditioning on volatility factors, the pricing kernel of market returns exhibit a downward sloping shape up to the extreme end of the right tail. Moreover, the volatility pricing kernel features a striking U-shape, implying that investors have high marginal utility in both high and low volatility states. This finding on the volatility pricing kernel presents a new empirical challenge to both existing equilibrium and reduced-form asset pricing models of volatility risk. Finally, using a full-fledged parametric model, we recover the joint pricing kernel, which is not otherwise identifiable.
