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Garleanu, Nicolae Bogdan; Pedersen, Lasse Heje; … - C.E.P.R. Discussion Papers - 2005

pressure in one option contract increases its price by an amount proportional to the variance of the unhedgeable part of the … option. Similarly, the demand pressure increases the price of any other option by an amount proportional to the covariance of … show that demand-pressure effects contribute to well-known option-pricing puzzles. Indeed, time-series tests show that …

Persistent link: https://www.econbiz.de/10005067592

The Equity Premium and the Business Cycle: the Role of Demand and Supply Shocks

Smith, Peter N; Sorensen, Steffen; Wickens, Michael R. - C.E.P.R. Discussion Papers - 2009

This paper explores the effects of the US business cycle on US stock market returns through an analysis of the equity risk premium. We propose a new methodology based on the SDF approach to asset pricing that allows us to uncover the different effects of aggregate demand and supply shocks. We...

Persistent link: https://www.econbiz.de/10005791523

Microeconomic Sources of Equity Risk

Wickens, Michael R. - C.E.P.R. Discussion Papers - 2003

Surprisingly there are very few estimates of the equity risk premium period-by-period that satisfy a no-arbitrage condition, despite the vast literature on the subject. This is mainly due to the difficulties of estimation. Using the stochastic discount factor (SDF) model based on observable...

Persistent link: https://www.econbiz.de/10005792185

Too-Systemic-To-Fail: What Option Markets Imply About Sector-wide Government Guarantees

Kelly, Bryan; Lustig, Hanno; van Nieuwerburgh, Stijn - C.E.P.R. Discussion Papers - 2012

We examine the pricing of financial crash insurance during the 2007-2009 financial crisis in U.S. option markets. A …

Persistent link: https://www.econbiz.de/10011083289

Carry

Koijen, Ralph; Moskowitz, Tobias J; Pedersen, Lasse Heje; … - C.E.P.R. Discussion Papers - 2013

Any security’s expected return can be decomposed into its “carry” and its expected price appreciation, where carry is a model-free characteristic that can be observed in advance. While carry has been studied almost exclusively for currencies, we find that carry predicts returns both in the...

Persistent link: https://www.econbiz.de/10011083673

Volatility Risk Premia and Exchange Rate Predictability

Della Corte, Pasquale; Ramadorai, Tarun; Sarno, Lucio - C.E.P.R. Discussion Papers - 2013

We investigate the predictive information content in foreign exchange volatility risk premia for exchange rate returns. The volatility risk premium is the difference between realized volatility and a model-free measure of expected volatility that is derived from currency options, and reflects...

Persistent link: https://www.econbiz.de/10011084715

Option-Based Credit Spreads

Culp, Christopher L.; Nozawa, Yoshio; Veronesi, Pietro - C.E.P.R. Discussion Papers - 2014

Theoretically, corporate debt is economically equivalent to safe debt minus a put option on the firm’s assets. We … by standard risk factors, and unlikely to be solely due to illiquidity. Our option-based approach also offers a novel …

Persistent link: https://www.econbiz.de/10011145468

Limits to Arbitrage and Hedging: Evidence from Commodity Markets

Acharya, Viral V; Lochstoer, Lars; Ramadorai, Tarun - C.E.P.R. Discussion Papers - 2009

We build an equilibrium model with commodity producers that are averse to future cash flow variability, and hedge using futures contracts. Their hedging demand is met by financial intermediaries who act as speculators, but are constrained in risk-taking. Increases (decreases) in producers’...

Persistent link: https://www.econbiz.de/10005016244

Understanding Index Option Returns

Broadie, Mark; Chernov, Mikhail; Johannes, Michael - C.E.P.R. Discussion Papers - 2007

This paper studies the returns from investing in index options. Previous research documents significant average option … approach to evaluate the significance of option returns and obtain different conclusions. Instead of using these statistical … metrics, we compare historical option returns to those generated by commonly used option pricing models. We find that the most …

Persistent link: https://www.econbiz.de/10005661467

Insider Trading in Credit Derivatives

Acharya, Viral V; Johnson, Tim - C.E.P.R. Discussion Papers - 2005

Insider trading in the credit derivatives market has become a significant concern for regulators and participants. This paper attempts to quantify the problem. Using news reflected in the stock market as a benchmark for public information, we report evidence of significant incremental...

Persistent link: https://www.econbiz.de/10005666591