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Recovering Risk Aversion From Option Prices And Realized Returns
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Book Synopsis Recovering Risk Aversion from Option Prices and Realized Returns by : Jens Carsten Jackwerth
Download or read book Recovering Risk Aversion from Option Prices and Realized Returns written by Jens Carsten Jackwerth and published by . This book was released on 2000 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: A relationship exists between aggregate risk-neutral and subjective probability distributions and risk aversion functions. We empirically derive risk aversion functions implied by option prices and realized returns on the Samp;P500 index simultaneously. These risk aversion functions dramatically change shapes around the 1987 crash: Precrash, they are positive and decreasing in wealth and largely consistent with standard assumptions made in economic theory. Postcrash, they are partially negative and partially increasing and irreconcilable with those assumptions. Mispricing in the option market is the most likely cause. Simulated trading strategies exploiting this mispricing shows excess returns even after accounting for the possibility of further crashes, transaction costs, and hedges against the downside risk.
Book Synopsis Recovering Probabilities and Risk Aversion from Option Prices and Realized Returns by : Mark Rubinstein
Download or read book Recovering Probabilities and Risk Aversion from Option Prices and Realized Returns written by Mark Rubinstein and published by . This book was released on 2008 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Recovering Risk Aversion from Options by : Robert R. Bliss
Download or read book Recovering Risk Aversion from Options written by Robert R. Bliss and published by . This book was released on 2005 with total page 38 pages. Available in PDF, EPUB and Kindle. Book excerpt: Cross-sections of option prices embed the risk-neutral probability densities functions (PDFs) for the future values of the underlying asset. Theory suggests that risk-neutral PDFs differ from market expectations due to risk premia. Using a utility function to adjust the risk-neutral PDF to produce subjective PDFs, we can obtain measures of the risk aversion implied in option prices. Using FTSE 100 and Samp;P 500 options, and both power and exponential utility functions, we show that subjective PDFs accurately forecast the distribution of realizations, while risk-neutral PDFs do not. The estimated coefficients of relative risk aversion are all reasonable. The relative risk aversion estimates are remarkably consistent across utility functions and across markets for given horizons. The degree of relative risk aversion declines with the forecast horizon and is lower during periods of high market volatility.
Book Synopsis Option-Implied Risk-Neutral Distributions and Risk Aversion by : Jens Carsten Jackwerth
Download or read book Option-Implied Risk-Neutral Distributions and Risk Aversion written by Jens Carsten Jackwerth and published by . This book was released on 2008 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Time Variations in Risk Aversion Recovered from Option Prices by : Moshe Omer
Download or read book Time Variations in Risk Aversion Recovered from Option Prices written by Moshe Omer and published by . This book was released on 2007 with total page 80 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Recovering Risk Aversion from Options by : Robert R. Bliss
Download or read book Recovering Risk Aversion from Options written by Robert R. Bliss and published by . This book was released on 2001 with total page 36 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Option Implied Moments and Risk Aversion by : Flavio Nardi
Download or read book Option Implied Moments and Risk Aversion written by Flavio Nardi and published by . This book was released on 2018 with total page 32 pages. Available in PDF, EPUB and Kindle. Book excerpt: In this paper I provide empirical evidence that index options implied higher moments can predict the index returns and Sharpe ratio. Specifically, I present a method to recover option implied subjective moments of the S &P500 index under the assumption of no arbitrage and logarithmic utility. Using index options prices and return data, I test the logarithmic utility assumption and obtain risk aversion estimates not statistically different from one at investment horizons of three to nine months. Under logarithmic utility, I show that the recovered subjective variance has forecasting power controlling for past realized variance. Interestingly, the risk neutral variance is larger than the subjective variance over the entire sample, an empirical fact that quantifies the implied variance premium for a log utility investor. Lastly, I also find that the forward looking Sharpe ratio implied by option prices has forecasting power; this finding can be adopted as a risk--adjusted market timing indicator to improve the return performance of either a passive indexing or a diversified portfolio investment strategy. For example, as a long term investor would rebalance their portfolio periodically to optimize or maintain their asset allocation targets (see for example, cite{ang2014asset}), they could use the option implied Sharpe ratio as a ``gauge'' of the overall market { it price level}. As such, they could take advantage of periods where there is a particularly high expected Sharpe ratio on the market to buy more of the market index when it is at lower valuation levels. Thus, this gauge serves as a reinforcing mechanism to buy low and sell high for periodic portfolio rebalancing.
Book Synopsis Extracting Risk Aversion Estimates from Option Prices by : Aveshen Pillay
Download or read book Extracting Risk Aversion Estimates from Option Prices written by Aveshen Pillay and published by . This book was released on 2010 with total page 134 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Trois essais sur le contenu informatif de la distribution des rendements implicite aux prix des options - Three essays on the informative content of the option-implied return distribution by : Dominique Toupin
Download or read book Trois essais sur le contenu informatif de la distribution des rendements implicite aux prix des options - Three essays on the informative content of the option-implied return distribution written by Dominique Toupin and published by . This book was released on 2020 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Résumé en anglais
Book Synopsis A Time Series Approach to Option Pricing by : Christophe Chorro
Download or read book A Time Series Approach to Option Pricing written by Christophe Chorro and published by Springer. This book was released on 2014-12-04 with total page 202 pages. Available in PDF, EPUB and Kindle. Book excerpt: The current world financial scene indicates at an intertwined and interdependent relationship between financial market activity and economic health. This book explains how the economic messages delivered by the dynamic evolution of financial asset returns are strongly related to option prices. The Black Scholes framework is introduced and by underlining its shortcomings, an alternative approach is presented that has emerged over the past ten years of academic research, an approach that is much more grounded on a realistic statistical analysis of data rather than on ad hoc tractable continuous time option pricing models. The reader then learns what it takes to understand and implement these option pricing models based on time series analysis in a self-contained way. The discussion covers modeling choices available to the quantitative analyst, as well as the tools to decide upon a particular model based on the historical datasets of financial returns. The reader is then guided into numerical deduction of option prices from these models and illustrations with real examples are used to reflect the accuracy of the approach using datasets of options on equity indices.
Book Synopsis General Equilibrium Option Pricing Method: Theoretical and Empirical Study by : Jian Chen
Download or read book General Equilibrium Option Pricing Method: Theoretical and Empirical Study written by Jian Chen and published by Springer. This book was released on 2018-04-10 with total page 163 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book mainly addresses the general equilibrium asset pricing method in two aspects: option pricing and variance risk premium. First, volatility smile and smirk is the famous puzzle in option pricing. Different from no arbitrage method, this book applies the general equilibrium approach in explaining the puzzle. In the presence of jump, investors impose more weights on the jump risk than the volatility risk, and as a result, investors require more jump risk premium which generates a pronounced volatility smirk. Second, based on the general equilibrium framework, this book proposes variance risk premium and empirically tests its predictive power for international stock market returns.
Book Synopsis Index Options Realized Returns Distributions from Passive Investment Strategies by : José Pablo Dapena
Download or read book Index Options Realized Returns Distributions from Passive Investment Strategies written by José Pablo Dapena and published by . This book was released on 2016 with total page 37 pages. Available in PDF, EPUB and Kindle. Book excerpt: Few papers provide research about options returns, and the few available are focused in the analysis from the perspective of the long side of the option contract, i.e. the buyer that pays the price and her expected and realized option return. The main point of our research work is to provide a simple metric to analyze option returns from the perspective of the short side of the contract, the seller, where at the time of the sale of naked options, capital is committed in the form of a guarantee or margin (similar to net worth). We estimate realized returns from passive investment strategies, by assuming puts and calls are kept until the expiration of the maturity. To that purpose we develop an appropriate algorithm which is applied on real historic data. Our result is a distribution of realized option returns (ex-ante prices and ex-post cash flows whether the options end up in or out-of-the-money with respect to margin requirements) for the seller point of view, as if the seller was an insurer seeking to calculate how profitable the insurance activity is. From the results we can see that selling puts is more profitable than selling calls, without adjusting for the return of the underlying asset and for the risk free rate of return, something in line with what was expected, but we also find that the risk is approximately the same. We also find that time tends to increase the realized returns, measured everything on annual basis.
Book Synopsis Social Security Programs and Retirement around the World by : Jonathan Gruber
Download or read book Social Security Programs and Retirement around the World written by Jonathan Gruber and published by University of Chicago Press. This book was released on 2009-02-15 with total page 752 pages. Available in PDF, EPUB and Kindle. Book excerpt: Social Security Programs and Retirement around the World represents the second stage of an ongoing research project studying the relationship between social security and labor. In the first volume, Jonathan Gruber and David A. Wise revealed enormous disincentives to continued work at older ages in developed countries. Provisions of many social security programs typically encourage retirement by reducing pay for work, inducing older employees to leave the labor force early and magnifying the financial burden caused by an aging population. At a certain age there is simply no financial benefit to continuing to work. In this volume, the authors turn to a country-by-country analysis of retirement behavior based on micro-data. The result of research compiled by teams in twelve countries, the volume shows an almost uniform correlation between levels of social security incentives and retirement behavior in each country. The estimates also show that the effect is strikingly uniform in countries with very different cultural histories, labor market institutions, and other social characteristics.
Author :Jens Carsten Jackwerth Publisher :Research Foundation Publications ISBN 13 :9780943205663 Total Pages :86 pages Book Rating :4.2/5 (56 download)
Book Synopsis Option-implied Risk-neutral Distributions and Risk Aversion by : Jens Carsten Jackwerth
Download or read book Option-implied Risk-neutral Distributions and Risk Aversion written by Jens Carsten Jackwerth and published by Research Foundation Publications. This book was released on 2004-01-01 with total page 86 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Engineering Risk and Finance by : Charles S. Tapiero
Download or read book Engineering Risk and Finance written by Charles S. Tapiero and published by Springer Science & Business Media. This book was released on 2013-02-13 with total page 518 pages. Available in PDF, EPUB and Kindle. Book excerpt: Risk models are models of uncertainty, engineered for some purposes. They are “educated guesses and hypotheses” assessed and valued in terms of well-defined future states and their consequences. They are engineered to predict, to manage countable and accountable futures and to provide a frame of reference within which we may believe that “uncertainty is tamed”. Quantitative-statistical tools are used to reconcile our information, experience and other knowledge with hypotheses that both serve as the foundation of risk models and also value and price risk. Risk models are therefore common to most professions, each with its own methods and techniques based on their needs, experience and a wisdom accrued over long periods of time. This book provides a broad and interdisciplinary foundation to engineering risks and to their financial valuation and pricing. Risk models applied in industry and business, heath care, safety, the environment and regulation are used to highlight their variety while financial valuation techniques are used to assess their financial consequences. This book is technically accessible to all readers and students with a basic background in probability and statistics (with 3 chapters devoted to introduce their elements). Principles of risk measurement, valuation and financial pricing as well as the economics of uncertainty are outlined in 5 chapters with numerous examples and applications. New results, extending classical models such as the CCAPM are presented providing insights to assess the risks and their price in an interconnected, dependent and strategic economic environment. In an environment departing from the fundamental assumptions we make regarding financial markets, the book provides a strategic/game-like approach to assess the risk and the opportunities that such an environment implies. To control these risks, a strategic-control approach is developed that recognizes that many risks resulting by “what we do” as well as “what others do”. In particular we address the strategic and statistical control of compliance in large financial institutions confronted increasingly with a complex and far more extensive regulation.
Book Synopsis Insurance Economics by : Peter Zweifel
Download or read book Insurance Economics written by Peter Zweifel and published by Springer Nature. This book was released on 2021-10-05 with total page 545 pages. Available in PDF, EPUB and Kindle. Book excerpt: Insurance Economics brings together the economic analysis of decision making under risk, risk management and demand for insurance among individuals and corporations, objectives pursued and management tools used by insurance companies, the regulation of insurance, and the division of labor between private and social insurance. Appropriate both for advanced undergraduate and graduate students of economics, management, and finance, this text provides the background required to understand current research. Predictions derived from theoretical arguments are not merely stated, but also related to empirical evidence. Throughout the book, conclusions summarize key results, helping readers to check their knowledge and comprehension. Issues discussed include paradoxes in decision making under risk and attempts at their resolution, moral hazard and adverse selection including the possibility of a “death spiral”, and future challenges to both private and social insurance such as globalization and the availability of genetic information. This second edition has been extensively revised. Most importantly, substantial content has been added to represent the evolution of risk-related research. A new chapter, Insurance Demand II: Nontraditional Approaches, provides a timely addition in view of recent developments in risk theory and insurance. Previous discussions of Enterprise Risk Management, long-term care insurance, adverse selection, and moral hazard have all been updated. In an effort to expand the global reach of the text, evidence and research from the U.S. and China have also been added.
Book Synopsis Stochastic Dominance Option Pricing by : Stylianos Perrakis
Download or read book Stochastic Dominance Option Pricing written by Stylianos Perrakis and published by Springer. This book was released on 2019-05-03 with total page 277 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book illustrates the application of the economic concept of stochastic dominance to option markets and presents an alternative option pricing paradigm to the prevailing no arbitrage simultaneous equilibrium in the frictionless underlying and option markets. This new methodology was developed primarily by the author, working independently or jointly with other co-authors, over the course of more than thirty years. Among others, it yields the fundamental Black-Scholes-Merton option value when markets are complete, presents a new approach to the pricing of rare event risk, and uncovers option mispricing that leads to tradeable strategies in the presence of transaction costs. In the latter case it shows how a utility-maximizing investor trading in the market and a riskless bond, subject to proportional transaction costs, can increase his/her expected utility by overlaying a zero-net-cost portfolio of options bought at their ask price and written at their bid price, irrespective of the specific form of the utility function. The book contains a unified presentation of these methods and results, making it a highly readable supplement for educators and sophisticated professionals working in the popular field of option pricing. It also features a foreword by George Constantinides, the Leo Melamed Professor of Finance at the Booth School of Business, University of Chicago, USA, who was a co-author in several parts of the book.
