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Explaining the Smile in Currency Options: Is it Anchoring?

Siddiqi, Hammad - Volkswirtschaftliche Fakultät, … - 2015

An anchoring adjusted currency option pricing formula is developed in which the risk of the underlying currency is used … as a starting point which gets adjusted upwards to arrive at the currency call risk. Anchoring bias implies that such … adjustments are insufficient. The new formula converges to the Garman-Kohlhagen formula in the absence of anchoring bias …

Persistent link: https://www.econbiz.de/10011250911

Relative Risk Perception and the Puzzle of Covered Call writing

Siddiqi, Hammad - Volkswirtschaftliche Fakultät, … - 2015

Market professionals with decades of experience typically argue that a call option is a surrogate for the underlying asset, indicating that they perceive the risk of a call option as similar to the risk of the underlying asset. Experimental evidence also points to the same conclusion. Such...

Persistent link: https://www.econbiz.de/10011196661

Mental Accounting: A Closed-Form Alternative to the Black Scholes Model

Siddiqi, Hammad - Volkswirtschaftliche Fakultät, … - 2013

The principle of no arbitrage says that identical assets should offer the same returns. However, experimental and anecdotal evidence suggests that people often rely on analogy making while valuing assets. The principle of analogy making says that similar assets should offer the same returns. I...

Persistent link: https://www.econbiz.de/10011109273

Investor Heterogeneity, Sentiment, and Skewness Preference in Options Market

Lazos, Aristogenis - 2016

This paper builds upon and extends Bali and Murray (2013) to investigate skewness preferences when investors with heterogeneous expectations hold long skewness positions. When investors are pessimistic (either pessimistic or optimistic), their overconfidence produces a downward (upward) bias...

Persistent link: https://www.econbiz.de/10012999086

Psychology, Stock/FX Trading, and Option Prices

Beilis, Alan - 2014

The financial crisis of 2008 had many putative causes. Psychology was an important driver for human decisions underlying these causes. However, quantitative financial models have no “knobs” to dial psychology parameters, and so arguably cannot possibly cope with financial crises. We have no...

Persistent link: https://www.econbiz.de/10013066771

How Investment Management Fees Hurt Investors

Ferguson, Robert - 2018

A widespread concern in the investment industry is whether commonly used investment management fee arrangements encourage investment managers to act in their clients' interests. The value to managers of a one-period call performance fee is maximized by maximizing performance volatility. This is...

Persistent link: https://www.econbiz.de/10012929879

TikTok Sentiment, Emotional Contagion, and Global Stock Returns

Chang, Ran; Peng, Lin - 2022

We introduce a novel social media sentiment measure, the video sentiment index (VSI), created from over nine billion popular user-generated videos across 48 countries. VSI is significantly associated with mood proxies induced by seasonal factors, cloud coverage, and COVID-related restrictions....

Persistent link: https://www.econbiz.de/10013405790

War Discourse and Disaster Premia : 160 Years of Evidence from Stock and Bond Markets

Hirshleifer, David; Mai, Dat; Kuntara Pukthuanthong - National Bureau of Economic Research - 2023

Using a semi-supervised topic model on 7,000,000 New York Times articles spanning 160 years, we test whether topics of media discourse predict future stock and bond market returns to test rational and behavioral hypotheses about market valuation of disaster risk. Focusing on media discourse...

Persistent link: https://www.econbiz.de/10014287305

ESG Rating, Investor Attention, and Stock Returns in China

Qin, Kaiyue - 2023

We study whether ESG ratings can predict stock returns in China. We find marginal evidence that stocks with higher ESG ratings have lower future returns. In addition, we explore the cross-sectional and time-series heterogeneities of the relationship between ESG and stock returns. We find the...

Persistent link: https://www.econbiz.de/10014255101

The Pricing of Derivatives on Assets with Quadratic Volatility

Zühlsdorff, Christian - 2002

The basic model of financial economics is the Samuelson model of geometric Brownian motion because of the celebrated Black-Scholes formula for pricing the call option. The asset's volatility is a linear function of the asset value and the model garantees positive asset prices. In this paper it...

Persistent link: https://www.econbiz.de/10010317656