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The term structure of VIX futures is generally upward sloping. The persistent VIX contango may result in abnormally strong performance for VIX futures selling or VIX call writing strategies. However, the high volatility of volatility and significant jump risk may expose short uncovered VIX...
Persistent link: https://www.econbiz.de/10012870103
We document that leverage-adjusted returns on S&P 500 index call and put portfolios are decreasing in their strike-to-price ratio over 1986-2010, contrary to the prediction of the Black-Scholes-Merton model. We test a large number of plausible unconditional factor models and find that only...
Persistent link: https://www.econbiz.de/10013116707
An anchoring-adjusted option pricing model is developed in which the volatility of the underlying stock return is used as a starting point that gets adjusted upwards to form expectations about call option volatility. I show that the anchoring price lies within the bounds implied by risk-averse...
Persistent link: https://www.econbiz.de/10013033252
In this study, we separately estimate the implied volatility from bid prices and ask prices ofdeep out-of-the-money (OTM) put options on the S&P500 index. We find that the impliedvolatility of ask prices has stronger stock return predictability than that of bid prices. Our finding is robust to...
Persistent link: https://www.econbiz.de/10012907873
Buy-Write and Put-Write strategies have been shown to match market returns with lower volatility resulting in higher risk-adjusted performance. The strategies benefit from the fact that implied volatility of options is generally higher than actual realized volatility. In this paper we show that...
Persistent link: https://www.econbiz.de/10012898549
In 2008, the S&P 500 experienced a drawdown of about 50% from peak to trough. Many assets which are typically considered effective equity diversifiers also faced precipitous losses. In stark contrast, volatility levels as measured by VIX experienced significant increases and in 2008 repeatedly...
Persistent link: https://www.econbiz.de/10012906250
We explore the use of an option selling overlay to improve portfolio rebalancing. Within a multi-asset class portfolio, portfolio weights deviate from targets as asset values fluctuate. Investors typically use a rebalancing process to bring portfolio weights back to their desired strategic...
Persistent link: https://www.econbiz.de/10012944574
Equity option markets exhibit intense trading activity. We use the variability of option implied volatility spread as a proxy for the impounding of new information, and changes in the interpretation of existing information, into option prices. Over the 2006 – 2016 period, we find that the...
Persistent link: https://www.econbiz.de/10012836056
In this paper, I examine the sources of momentum returns and uncover a list of intriguing features. I find that when the momentum returns are decomposed the contributions of the explained and the unexplained risk factors depend on the level of analysis, the risk factors used, and the lag...
Persistent link: https://www.econbiz.de/10013029071
In this paper, we investigate volatility spillovers between oil prices and the stock prices of the companies listed in Borsa Istanbul. We employ the dynamic conditional correlation (DCC) and Baba, Engle, Kraft, and Kroner (BEKK) GARCH models using daily data for the period between June 22, 2015,...
Persistent link: https://www.econbiz.de/10013334792