Earticle

초록

영어

We develop a discrete-time option pricing model using a variance-dependent pricing kernel of Christoffersen, Heston and Jacobs (2013) under an economic framework allowing for dynamic volatility and dynamic jump intensity. Using this model, we examine the role of the variance premium and jump risk premium in explaining S&P 500 index option returns. Our results stress the importance of the variance premium in explaining the stylized characteristics of index option returns, including short-term option returns, which are insufficiently explained by extant option pricing models. In particular, the variance premium can explain both 1-month holding period returns of 2-month maturity straddles, which are significantly negative, and call returns, which decrease according to moneyness. Even though the jump risk premium emphasized in the previous literature is able to well fit the option prices, it does not improve the explanatory power for the above two stylized option returns. The outperformance of the variance premium stems from its ability to capture the wedge between physical and risk-neutral volatilities.

목차

Abstract
 1. Introduction
 2. Option Pricing Models
  2.1 Asset Dynamics under Physical Measure
  2.2 The Pricing Kernel
  2.3 The Equivalent Martingale Measure
  2.4 Risk-neutral Dynamics
  2.5 Five Nested Models
 3. Methodology
  3.1 Expected Option Returns
  3.2 Finite-Sample Distribution
  3.3 Parameter Estimation: a Joint Estimation
 4. Empirical Results
  4.1 P-measure Parameter Estimates
  4.2 Option Data and Joint Estimation Results
  4.3 Individual Option Returns
  4.4 Option Portfolio Returns
 5. Interpretation
  5.1 Role of Jump Risk Premium
  5.2 Role of the Variance premium
  5.3 Implied Pricing Kernel
  5.4 Comparison with Extant Literature: Jump versus variance premium
 6. Conclusion
 Appendix
 References
 Table
 Figure

키워드

저자

• Suk Joon Byun [ Associate Professor of Finance, KAIST Business School, Korea Advanced Institute of Science and Technology, Seoul, Korea ]
• Byoung-Hyun Jeon [ KAIST Business School, Korea Advanced Institute of Science and Technology, Seoul, Korea ]
• Byungsun Min [ Wooribank, Seoul, Korea, ]
• Sun-Joong Yoon [ Assistant Professor of Finance, Dongguk Business School, Dongguk University- Seoul, Seoul, Korea ] Corresponding author

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간행물

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• 간행물명

  한국재무학회 학술대회

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  부정기

• 수록기간

  2006~2024

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  KDC 325 DDC 330