This study examines the effects of crisis-related factors on the returns of KOSPI200 index options using a factor model, which was introduced by Constantinides, Jackwerth and Savov (2013). Three factors incorporating price jumps, changes in volatility, and volatility jumps are considered as the crisis-related factors. With the data for the period from 2004 to 2015, we find followings : First, most of the crisis-related factor premia are statistically significant, and their signs are consistent with those expected. Second, these crisis-related factors contribute to improve the understanding of the cross-sectional variation in KOSPI200 index option returns. Third, the crisis-related factor premia became much more significant after the global financial crisis in 2008. Finally, our empirical findings are robust to whether the long options and the in-the-money options are included in the sample or not, and to whether the factor premia are constrained to equal the corresponding premia estimated from the cross-section of equities.
Index option returns and systemic equity risk
