Earticle

초록

영어

The assumption of dynamic replication in no-arbitrage option pricing models does not hold in practice due to discreteness of trading hours as well as trading costs, which suggests the potential presence of preference-driven risk premiums. In this paper, we empirically show that discretely hedged S&P 500 index option portfolios are exposed to covariance and coskewness risk with the market portfolio. Using the three-moment CAPM of Kraus and Litzenberger (1976), we find that the rate of return of the portfolio significantly loads on the two risk factors, and their risk premiums are significantly positive. The equilibrium model complements the prevailing approach of the no-arbitrage framework, and reveals that the volatility smile is linked to investors’ preference on the unhedged market risks.

목차

Abstract
 I. Sample Description
  A. Data
  B. Returns of Calls, Puts, and Zero-Beta Straddles
  C. Discretely Hedged Option Portfolios
 II. Pricing Test Using Higher-Moment CAPM
  A. Three- and Four-Moment Capital Asset Pricing Model
  B. Time-Series Analysis
  C. Cross-Sectional Analysis
  D. Goodness-of-Fit Test
 III. Robustness
  A. Longer-Term Options
  B. Finite Sample Distribution of Loadings and Risk Premiums
 IV. Conclusion
 REFERENCES
 Table
 Figure

키워드

저자

• Jaewon Park [ Graduate School of Finance, Korea Advanced Institute of Science and Technology ] Corresponding author
• Tong S. Kim [ Graduate School of Finance, Korea Advanced Institute of Science and Technology ]

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간행물

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• 간행물명

  한국재무학회 학술대회

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  2006~2024

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  KDC 325 DDC 330