The Pricing of Stock Index Options in a General Equilibrium Model PDF Download
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Author: Warren Bernard Bailey
Publisher:
ISBN:
Category : Stock price indexes
Languages : en
Pages : 22
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Book Description
Author: Warren Bernard Bailey
Publisher:
ISBN:
Category : Stock price indexes
Languages : en
Pages : 22
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Book Description
Author: René M. Stulz
Publisher:
ISBN:
Category :
Languages : en
Pages : 19
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Book Description
Author: Jian Chen
Publisher: Springer
ISBN: 9811074283
Category : Business & Economics
Languages : en
Pages : 163
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Book Description
This book mainly addresses the general equilibrium asset pricing method in two aspects: option pricing and variance risk premium. First, volatility smile and smirk is the famous puzzle in option pricing. Different from no arbitrage method, this book applies the general equilibrium approach in explaining the puzzle. In the presence of jump, investors impose more weights on the jump risk than the volatility risk, and as a result, investors require more jump risk premium which generates a pronounced volatility smirk. Second, based on the general equilibrium framework, this book proposes variance risk premium and empirically tests its predictive power for international stock market returns.
Author: Anne Fremault
Publisher:
ISBN:
Category : Stock index futures
Languages : en
Pages : 43
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Book Description
Author: Günter Bamberg
Publisher: Springer Science & Business Media
ISBN: 3642709958
Category : Business & Economics
Languages : en
Pages : 233
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Book Description
Author: Michael Lee Hemler
Publisher:
ISBN:
Category : Equilibrium (Economics)
Languages : en
Pages : 24
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Book Description
Author: Jérôme Detemple
Publisher:
ISBN:
Category : Options (Finance)
Languages : en
Pages : 48
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Book Description
Author: Kyriakos Chourdakis
Publisher:
ISBN:
Category :
Languages : en
Pages : 45
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Book Description
This paper derives a general equilibrium option-pricing model for a European call assuming that the economy is exogenously driven by a dividend process following Hamilton's (1989) Markov regime switching model. The derived formula is used to investigate if the European call option prices are consistently priced with the stock market prices. This is done by obtaining the implied risk aversion preferences, based on traded option prices data.
Author: Pedro Santa-Clara
Publisher:
ISBN:
Category : Options (Finance) - Econometric models
Languages : en
Pages : 48
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Book Description
We use a novel pricing model to filter times series of diffusive volatility and jump intensity from S&P 500 index options. These two measures capture the ex-ante risk assessed by investors. We find that both components of risk vary substantially over time, are quite persistent, and correlate with each other and with the stock index. Using a simple general equilibrium model with a representative investor, we translate the filtered measures of ex-ante risk into an ex-ante risk premium. We find that the average premium that compensates the investor for the risks implicit in option prices, 10.1 percent, is about twice the premium required to compensate the same investor for the realized volatility, 5.8 percent. Moreover, the ex-ante equity premium that we uncover is highly volatile, with values between 2 and 32 percent. The component of the premium that corresponds to the jump risk varies between 0 and 12 percent.
Author: Luca Benzoni
Publisher:
ISBN:
Category :
Languages : en
Pages : 47
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Book Description
The 1987 stock market crash occurred with minimal impact on observable economic variables (e.g., consumption), yet dramatically and permanently changed the shape of the implied volatility curve for equity index options. Here, we propose a general equilibrium model that captures many salient features of the U.S. equity and options markets before, during, and after the crash. The representative agent is endowed with Epstein-Zin preferences and the aggregate dividend and consumption processes are driven by a persistent stochastic growth variable that can jump. In reaction to a market crash, the agent updates her beliefs about the distribution of the jump component. We identify a realistic calibration of the model that matches the prices of short-maturity at-the-money and deep out-of-the-money Samp;P 500 put options, as well as the prices of individual stock options. Further, the model generates a steep shift in the implied volatility 'smirk' for Samp;P 500 options after the 1987 crash. This 'regime shift' occurs in spite of a minimal impact on observable macroeconomic fundamentals. Finally, the model's implications are consistent with the empirical properties of dividends, the equity premium, as well as the level and standard deviation of the risk-free rate. Overall, our findings show that it is possible to reconcile the stylized properties of the equity and option markets in the framework of rational expectations, consistent with the notion that these two markets are integrated.
