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Optimal Dynamic Asset Allocation with Transaction Costs : The Role of Hedging Demands

Collin-Dufresne, Pierre; Daniel, Kent; Sağlam, Mehmet - National Bureau of Economic Research - 2024

trading is costly, but only for agents with myopic utility. Non-myopic agents benefit from hedging against future shocks to … hedging demands of a long-horizon investor using a set of simplified examples, and using a daily trading strategy based on the …

Persistent link: https://www.econbiz.de/10015094900

Risk Preferences Implied by Synthetic Options

Dew-Becker, Ian; Giglio, Stefano - National Bureau of Economic Research - 2023

demanding a premium for hedging risk. This paper examines the consistency of those explanations with returns on dynamically … risk of hedging options exposures have declined, consistent with a model in which intermediaries drive option prices …

Persistent link: https://www.econbiz.de/10014436964

Forward Return Expectations

Gandhi, Mihir; Gormsen, Niels; Lazarus, Eben - National Bureau of Economic Research - 2023

We measure investors' short- and long-term stock-return expectations using both options and survey data. These expectations at different horizons reveal what investors think their own short-term expectations will be in the future, or forward return expectations. While contemporaneous short-term...

Persistent link: https://www.econbiz.de/10014372444

Equity Term Structures without Dividend Strips Data

Giglio, Stefano; Kelly, Bryan T.; Kozak, Serhiy - National Bureau of Economic Research - 2023

We use a large cross-section of equity returns to estimate a rich affine model of equity prices, dividends, returns and their dynamics. Using the model, we price dividend strips of the aggregate market index, as well as any other well-diversified equity portfolio. We do not use any dividend...

Persistent link: https://www.econbiz.de/10014250137

Mispricing of S&P 500 Index Options

Constantinides, George M. - 2008

Widespread violations of stochastic dominance by one-month S&P 500 index call options over 1986-2006 imply that a trader can improve expected utility by engaging in a zero-net-cost trade net of transaction costs and bid-ask spread. Although pre-crash option prices conform to the...

Persistent link: https://www.econbiz.de/10012464103

Hedging Macroeconomic and Financial Uncertainty and Volatility

Dew-Becker, Ian - 2019

risks. Portfolios hedging macro uncertainty have historically earned zero or even significantly positive returns, while …

Persistent link: https://www.econbiz.de/10012480268

Mispriced Index Option Portfolios

Constantinides, George M. - 2017

The optimal portfolio of a utility-maximizing investor trading in the S&P 500 index and cash, subject to proportional transaction costs, becomes stochastically dominated when overlaid with a zero-net-cost portfolio of S&P 500 options bought at their ask and written at their bid price in most...

Persistent link: https://www.econbiz.de/10012454974

Option Hedging Using Empirical Pricing Kernels

Rosenberg, Joshua V. - 1997

This paper develops a method for option hedging which is consistent with time-varying preferences and probabilities … the spread between implied and objective volatilities. Hedging results reveal that typical hedging techniques for out …-of-the-money S&P500 index options, such as Black-Scholes or historical minimum variance hedging, are inferior to the EPK hedging …

Persistent link: https://www.econbiz.de/10012472589

Embedded Leverage

Frazzini, Andrea - 2012

Many financial instruments are designed with embedded leverage such as options and leveraged exchange traded funds (ETFs). Embedded leverage alleviates investors' leverage constraints and, therefore, we hypothesize that embedded leverage lowers required returns. Consistent with this hypothesis,...

Persistent link: https://www.econbiz.de/10012460102

Trading Volume Alpha

Goyenko, Ruslan; Kelly, Bryan T.; Moskowitz, Tobias J.; … - National Bureau of Economic Research - 2024

Portfolio optimization focuses on risk and return prediction, yet implementation costs critically matter. Predicting trading costs is challenging because costs depend on trade size and trader identity, thus impeding a generic solution. We focus on a component of trading costs that applies...

Persistent link: https://www.econbiz.de/10015094879