Slope of Implied Volatility Smile and Cross-Sectional Stock Returns

2008 ◽  
Author(s):  
Shu Yan
Keyword(s):  
Stock Returns ◽  
Implied Volatility ◽  
Volatility Smile ◽  
Cross Sectional

scholarly journals Pricing and hedging Asian options under Levy processes and robust long-term investing with learning about stock returns

2021 ◽  
Author(s):  
Andrew Na
Keyword(s):  
Stock Returns ◽  
Implied Volatility ◽  
Calibration Method ◽  
Recursive Utility ◽  
Asian Options ◽  
Volatility Smile ◽  
Bivariate Model ◽  
Risky Assets ◽  
Fourier Cosine

In this work we propose a parametric model using the techniques of time-changed subordination that captures the implied volatility smile. We demonstrate that the Fourier-Cosine method can be used in a semi-static way to hedge for quadratic, VaR and AVaR risk. We also observe that investors looking to hedge VaR can simply hold the amount in a portfolio of mostly cash, whereas an investor hedging AVaR will need to hold more risky assets. We also extend ES risk to a robust framework. A conditional calibration method to calibrate the bivariate model is proposed. For a robust long-term investor who maximizes their recursive utility and learns about the stock returns, as the willingness to substitute over time increases, the equity demand decreases and consumption-wealth ratio increases. As the preference for robustness increases the demand for risk decreases. For a positive correlation, we observe that learning about returns encourages the investor to short the bond at all levels of u and vice versa

scholarly journals The impact of the leverage effect on the implied volatility smile: evidence for the German option market

2020 ◽  
Author(s):  
A. W. Rathgeber ◽  
J. Stadler ◽  
S. Stöckl
Keyword(s):  
Stock Returns ◽  
Implied Volatility ◽  
Ad Hoc ◽  
Simulation Studies ◽  
Volatility Smile ◽  
Theoretical Derivation ◽  
Data Set ◽  
Unique Data ◽  
Theoretical Predictions ◽  
The Impact

Abstract It is a widely known theoretical derivation, that the firm’s leverage is negatively related to volatility of stock returns, although the empirical evidence is still outstanding. To empirically evaluate the leverage we first complement previous simulation studies by deriving theoretical predictions of leverage changes on the volatility smile. Even more important, we empirically test these predictions with an event study using intra-day Eurex option data and a unique data set of 138 ad-hoc news. For our theoretically derived predictions we observe that changes in leverage of DAX companies from 1999 to 2014 cause significant changes to the implied volatility smile.

scholarly journals Pricing and hedging Asian options under Levy processes and robust long-term investing with learning about stock returns

2021 ◽  
Author(s):  
Andrew Na
Keyword(s):  
Stock Returns ◽  
Implied Volatility ◽  
Calibration Method ◽  
Recursive Utility ◽  
Asian Options ◽  
Volatility Smile ◽  
Bivariate Model ◽  
Risky Assets ◽  
Fourier Cosine

In this work we propose a parametric model using the techniques of time-changed subordination that captures the implied volatility smile. We demonstrate that the Fourier-Cosine method can be used in a semi-static way to hedge for quadratic, VaR and AVaR risk. We also observe that investors looking to hedge VaR can simply hold the amount in a portfolio of mostly cash, whereas an investor hedging AVaR will need to hold more risky assets. We also extend ES risk to a robust framework. A conditional calibration method to calibrate the bivariate model is proposed. For a robust long-term investor who maximizes their recursive utility and learns about the stock returns, as the willingness to substitute over time increases, the equity demand decreases and consumption-wealth ratio increases. As the preference for robustness increases the demand for risk decreases. For a positive correlation, we observe that learning about returns encourages the investor to short the bond at all levels of u and vice versa

scholarly journals Risk-Neutral Skewness, Informed Trading, and the Cross Section of Stock Returns

2020 ◽  
pp. 1-25 ◽  
Author(s):  
Tarun Chordia ◽  
Tse-Chun Lin ◽  
Vincent Xiang
Keyword(s):  
Stock Returns ◽  
Implied Volatility ◽  
Informed Trading ◽  
Positive Relation ◽  
Cross Sectional ◽  
News Releases ◽  
Surface Data ◽  
Incremental Information ◽  
Risk Neutral ◽  
Volatility Surface

Abstract In this article, we use volatility surface data from options contracts to document a strong, robust, and positive cross-sectional relation between risk-neutral skewness (RNS) and subsequent stock returns. The differential return between high- and low-RNS stocks amounts to 0.17% per week. Preannouncement RNS is positively related to earnings announcement returns, and the positive RNS–return relation is more pronounced for other nonscheduled news releases. This suggests that it is informed trading that drives the positive relation between RNS and subsequent stock returns. We also find that RNS contains incremental information beyond trading signals captured by option-implied volatility and volume.

Freedom Indices and Capital Asset Pricing Model: Some Malaysian Evidence

2020 ◽  
Vol 1 (1) ◽  
pp. 1-21
Author(s):  
Ying Tay Lee ◽  
Devinaga Rasiah ◽  
Ming Ming Lai
Keyword(s):  
Human Rights ◽  
Asset Pricing ◽  
Stock Returns ◽  
Firm Size ◽  
Explanatory Power ◽  
Least Square ◽  
Press Freedom ◽  
Capital Asset Pricing ◽  
Capital Asset ◽  
Cross Sectional

Human rights and fundamental freedoms such as economic, political, and press freedoms vary widely from country to country. It creates opportunity and risk in investment decisions. Thus, this study is carried out to examine if the explanatory power of the model for capital asset pricing could be improved when these human rights movement indices are included in the model. The sample for this study comprises of 495 stocks listed in Bursa Malaysia, covering the sampling period from 2003 to 2013. The model applied in this study employed the pooled ordinary least square regression estimation. In addition, the robustness of the model is tested by using firm size as a controlled variable. The findings show that market beta as well as the economic and press freedom indices could explain the cross-sectional stock returns of the Malaysian stock market. By controlling the firm size, it adds marginally to the explanation of the extended CAP model which incorporated economic, political, and press freedom indices.

Sign in / Sign up

Export Citation Format

Share Document