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Put Option Exercise and Short Stock Interest Arbitrage
Barraclough, Kathryn - 2013
U.S. exchange-traded stock options are exercisable before expiration. While put options should frequently be exercised early to earn interest, they are not. In this paper, we explain an early exercise decision rule and then examine actual exercise behavior during the period January 1996 through...
Persistent link: https://www.econbiz.de/10013090248
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Understanding Mortgage Spreads
Boyarchenko, Nina; Fuster, Andreas; Lucca, David O. - 2014
Spreads of agency mortgage-backed securities (MBS) vary significantly in the cross section and over time, but the sources of this variation are not well understood. We document that, in the cross section, MBS spreads adjusted for the prepayment option show a pronounced smile with respect to the...
Persistent link: https://www.econbiz.de/10010404146
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The Pricing Kernel Is U-shaped
Sichert, Tobias - 2020
Numerous studies find S-shaped pricing kernels, which is conflicting with standard theory. In contrast to that, based on a novel GARCH model with structural breaks, I show that the pricing kernel is consistently U-shaped. The results are robust to variations in the methodology and hold for...
Persistent link: https://www.econbiz.de/10012853175
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"Up" and "Down" Levy Jumps and Market Risk Premia Implications from S&P500 Options
Carverhill, Andrew P. - 2020
We model the S&P500 index options dynamics using the CGMY distribution, with independent "up" and "down" return jumps, and diffusive jump intensities. Allowing the up and down parts to be separately parameterised accounts for the dynamic smirk effect, without correlation between returns and...
Persistent link: https://www.econbiz.de/10012837432
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Returns of Claims on the Upside and the Viability of U-Shaped Pricing Kernels
Bakshi, Gurdip - 2018
When the pricing kernel is U-shaped, then expected returns of claims with payout on the upside are negative for strikes beyond a threshold, determined by the slope of the U-shaped kernel in its increasing region, and have negative partial derivative with respect to strike in the increasing...
Persistent link: https://www.econbiz.de/10012940716
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An Equilibrium Pricing for OTC Derivatives with Collateralization. Application of Economic Premium Principle
Takino, Kazuhiro - 2016
In this article, we propose an equilibrium pricing rule for the contingent claims by applying the economic premium principle initiated by Buhlmann (1980). The derivative markets in our model are over-the-counter (OTC) markets and have counterparty risks. We reconstruct the economic premium...
Persistent link: https://www.econbiz.de/10012999558
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The Pricing of Market Jumps in the Cross-Section of Stocks and Options
Babaoglu, Kadir - 2018
Market index and individual stock returns exhibit jumps in addition to normal shocks. Equities have exposure to the market and sensitivity to the market is important for explaining equity returns and option prices. I develop a new factor model that explores (i) if a separate beta for market...
Persistent link: https://www.econbiz.de/10012936701
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Modeling Conditional Factor Risk Premia Implied by Index Option Returns
Fournier, Mathieu; Jacobs, Kris; Orłowski, Piotr - 2021
We propose a novel factor model for option returns. Option exposures are estimated nonparametrically and factor risk premia can vary nonlinearly with states. The model is estimated using regressions, with minimal assumptions on factor and option return dynamics. Using index options, we...
Persistent link: https://www.econbiz.de/10013213854
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Arbitrage-Based Filtering of Option Price Data
Moussa, Karim - 2018
meaningful, this paper proposes a simple filtering procedure for option prices based on the no-arbitrage principle, in which the … data are adjusted only if basic no-arbitrage conditions are violated. In such case, quotes are adjusted by using …
Persistent link: https://www.econbiz.de/10012916692
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Stock Index Arbitrage in the Turkish Market
Slivka, Ronald T. - 2016
For the first time in the Turkish stock market, the width of the zero arbitrage band for BIST 30 stock index arbitrage … costs. This study also extends the literature of stock index arbitrage by utilizing intraday data to compute returns for … forward and reverse BIST 30 arbitrage once per minute for 2014 and 2015 futures contracts. These returns enable identification …
Persistent link: https://www.econbiz.de/10013003009