Cross-Sectional Stock Option Pricing and Factor Models of Returns

2008 ◽  
Author(s):  
Mihaela Serban ◽  
John P. Lehoczky ◽  
Duane J. Seppi
Keyword(s):  
Option Pricing ◽  
Stock Option ◽  
Factor Models ◽  
Cross Sectional

Numerical simulation of the stock option pricing

2010 ◽  
Author(s):  
Jiaying Pan ◽  
Lian Xue ◽  
Zheming Huang ◽  
Quanyu Lin
Keyword(s):  
Numerical Simulation ◽  
Option Pricing ◽  
Stock Option

Xilinx, Stock Option Pricing, and the Meaning of Arm's Length

2011 ◽  
Vol 9 (1) ◽  
pp. 50-63
Author(s):  
Brett R. Wilkinson ◽  
Tracy J. Noga
Keyword(s):  
Option Pricing ◽  
Cost Sharing ◽  
Transfer Pricing ◽  
Stock Option ◽  
Sharp Contrast ◽  
Fundamental Importance ◽  
Ninth Circuit ◽  
The Future ◽  
History Of ◽  
The U.S

ABSTRACT In this paper, we examine the controversy surrounding the Xilinx case and explore what the case means for the future of transfer pricing. Although the IRS acquiesced in the Xilinx result, it expressly disagreed with the reasoning and asserted that the issue is now moot due to the application of the 2009 regulations. In sharp contrast, multiple commentators have expressed the view that the Xilinx result might in fact render the 2009 regulations invalid. For this reason, it is apparent that significant uncertainty continues to surround the central issues in Xilinx, namely, the way that stock option costs should be treated in cost sharing arrangements. In this paper, we explore what happened in Xilinx and why it matters. We then examine the implications of these developments for the future of transfer pricing, suggesting that this is potentially a watershed moment in the history of transfer pricing and the meaning of arm's length. We conclude that the Supreme Court's decision in Mayo means that the 2009 regulations are likely to stand. However, we also suggest that the IRS may have erred in not appealing the Xilinx decision because of the fundamental importance of establishing a true understanding of arm's length. The current interpretation, as articulated by the Ninth Circuit, leaves lingering uncertainty and appears to place the U.S. at odds with the position of the Organisation for Economic Co-operation and Development (OECD).

scholarly journals Nuclear Hazard and Asset Prices: Implications of Nuclear Disasters in the Cross-Sectional Behavior of Stock Returns

2020 ◽  
Vol 12 (22) ◽  
pp. 9721
Author(s):  
Ana Belén Alonso-Conde ◽  
Javier Rojo-Suárez
Keyword(s):  
Stock Returns ◽  
Factor Model ◽  
Large Fraction ◽  
Factor Models ◽  
Cross Sectional ◽  
Risk Premiums ◽  
Conditional Capm ◽  
Equity Risk ◽  
The Cross ◽  
The Cost

Using stock return data for the Japanese equity market, for the period from July 1983 to June 2018, we analyze the effect of major nuclear disasters worldwide on Japanese discount rates. For that purpose, we compare the performance of the capital asset pricing model (CAPM) conditional on the event of nuclear disasters with that of the classic CAPM and the Fama–French three- and five-factor models. In order to control for nuclear disasters, we use an instrument that allows us to parameterize the linear stochastic discount factor of the conditional CAPM and transform the classic CAPM into a three-factor model. In this regard, the use of nuclear disasters as an explanatory variable for the cross-sectional behavior of stock returns is a novel contribution of this research. Our results suggest that nuclear disasters account for a large fraction of the variation of stock returns, allowing the CAPM to perform similarly to the Fama–French three- and five-factor models. Furthermore, our results show that, in general, nuclear disasters are positively related to the expected returns of a large number of assets under study. Our results have important implications for the task of estimating the cost of equity and constitute a step forward in understanding the relationship between equity risk premiums and nuclear disasters.

Using Stocks or Portfolios in Tests of Factor Models

2019 ◽  
Vol 55 (3) ◽  
pp. 709-750 ◽  
Author(s):  
Andrew Ang ◽  
Jun Liu ◽  
Krista Schwarz
Keyword(s):  
Asset Pricing ◽  
Risk Premia ◽  
Factor Models ◽  
Idiosyncratic Volatility ◽  
Standard Errors ◽  
Coefficient Estimates ◽  
Pricing Models ◽  
Cross Sectional ◽  
Factor Loadings ◽  
Asset Pricing Models

We examine the efficiency of using individual stocks or portfolios as base assets to test asset pricing models using cross-sectional data. The literature has argued that creating portfolios reduces idiosyncratic volatility and allows more precise estimates of factor loadings, and consequently risk premia. We show analytically and empirically that smaller standard errors of portfolio beta estimates do not lead to smaller standard errors of cross-sectional coefficient estimates. Factor risk premia standard errors are determined by the cross-sectional distributions of factor loadings and residual risk. Portfolios destroy information by shrinking the dispersion of betas, leading to larger standard errors.

THE ENTROPY THEORY OF STOCK OPTION PRICING

1999 ◽  
Vol 02 (03) ◽  
pp. 331-355 ◽  
Author(s):  
LES GULKO
Keyword(s):  
Option Pricing ◽  
Interest Rates ◽  
Stock Price ◽  
Price Change ◽  
Price Volatility ◽  
Stock Option ◽  
Market Uncertainty ◽  
Gamma Model ◽  
Black Scholes ◽  
Market Beliefs

An informationally efficient price keeps investors as a group in the state of maximum uncertainty about the next price change. The Entropy Pricing Theory (EPT) captures this intuition and suggests that, in informationally efficient markets, perfectly uncertain market beliefs must prevail. When the entropy functional is used to index the market uncertainty, then the entropy-maximizing market beliefs must prevail. The EPT resolves the ambiguity of asset valuation in incomplete markets, notably, the valuation of derivative securities. We use the EPT to derive a new stock option pricing model that is similar to Black–Scholes' with the lognormal distribution replaced by a gamma distribution. Unlike the Black–Scholes model, the gamma model does not restrict the dynamics of the stock price or the short-term interest rate. Option replication based on the gamma model accounts for random changes in the stock price, price volatility and interest rates.

scholarly journals Executive Stock Option Pricing in China Under Stochastic Volatility

2015 ◽  
Vol 35 (10) ◽  
pp. 953-960 ◽  
Author(s):  
Terence Tai Leung Chong ◽  
Yue Ding ◽  
Yong Li
Keyword(s):  
Option Pricing ◽  
Stochastic Volatility ◽  
Stock Option ◽  
Executive Stock Option

scholarly journals Extradyadic Involvement in Dating Relationships: Prevalence and Factor Structure of The Extradyadic Behavior Inventory

2016 ◽  
Vol 9 (1) ◽  
pp. 131-131
Author(s):  
A. Martins ◽  
◽  
R. Andrade ◽  
I. Narciso ◽  
M. C. Canavarro ◽  
...  
Keyword(s):  
Factor Structure ◽  
Cross Sectional Study ◽  
Factor Models ◽  
Sectional Study ◽  
Dating Relationships ◽  
Cross Sectional ◽  
Relational Information ◽  
Face To Face ◽  
Online Interactions ◽  
Comprehensive List

Objective: High rates of extradyadic involvement during dating have been reported. An increasing attention has been given to extradyadic online interactions. Recently, a measure including a comprehensive list of face-to-face and online extradyadic behaviors (EDB) was developed, the Extradyadic Behavior Inventory (EDBI; Luo, Carter, & Snyder, 2010). The aims of this study were to assess the prevalence rates of face-to-face and online EDB during exclusive dating relationships, and to examine the factor structure of the EDBI. Design and Method: The sample of this cross-sectional study consisted of 947 participants (275 men and 672 women), with a mean age of 23.40 years (SD = 3.99). Participants were in the current relationship for an average of 34 months. Participants completed a self-reported questionnaire on sociodemographic and relational information and the Portuguese version of the Extradyadic Behavior Inventory. Results: Most participants (66.2% of men and 60.4% of women) reported engagement in face-to-face EDB, and 50.2% of men and 42.1% of women reported engagement in online EDB. Men reported significantly higher engagement in online interactions than women. The exploratory factor analysis identified a two-factor structure for both face-to-face (physical/sexual and emotional) and online (sexual and emotional) EDB. Men reported significantly higher scores than women in all forms of extradyadic involvement. Conclusions: The two-factor models identified for face-to-face and online extradyadic involvement are consistent with the perspective that differentiates two types of infidelity – sexual and emotional. By covering a comprehensive list of clearly defined EDB, the EDBI overcomes important limitations of research on infidelity.

scholarly journals Factors influencing SRI fund performance

2019 ◽  
Vol 3 (1) ◽  
pp. 68-81
Author(s):  
Halil Kiymaz
Keyword(s):  
Regression Analysis ◽  
Factor Model ◽  
Five Factor Model ◽  
Fund Performance ◽  
Factor Models ◽  
Cross Sectional ◽  
Content Type ◽  
Responsible Investment ◽  
Factors Influencing ◽  
Three Factor

Purpose The purpose of this paper is to examine socially responsible investment (SRI) fund performance and investigate the factors influencing fund performance. Design/methodology/approach The study uses return data from the Morningstar database for 152 SRI funds from January 1995 to May 2015. The initial analysis includes the use of various risk-adjusted performance measures, including Sharpe ratio, Treynor ratio, Information ratio, Sortino ratio and M2. The study also uses four factor models, including Jensen single-factor model, Fama–French three-factor model, Carhart four-factor model and Fama–French five-factor model to explain SRI fund returns. Finally, a cross-sectional regression analysis is applied to investigate the determinants of SRI fund returns. Findings The results show that, on average, the SRI funds provide comparable risk-adjusted returns relative to various benchmark market indices. Market factor is significant in explaining SRI fund returns. Examining each factor model, the results do not support Fama–French’s three-factor model as neither size nor value factor is significant. The author finds weak support for Carhart’s momentum factor along with the market factor. Finally, the Fama–French five-factor model shows market, size and operating profit factors explain SRI fund returns. The study also finds the fund performance is stronger for funds with the higher turnover ratio, the larger fund size and more managerial experience and lower for funds with higher expense ratio. Also, funds formed with negative screening perform better than positive or mixed screened funds. Originality/value SRI funds have received considerable attention from investors. This study contributes to the literature by examining SRI fund performance and investigating factors influencing their performance using multiple factor models and cross-sectional regression analysis. The findings are relevant for investors who demand responsible investment opportunities without sacrificing returns for nonfinancial screenings. Findings also suggest that investors should consider fund characteristics when selecting SRI funds.

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