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The Shape and Term Structure of the Index Option Smirk: Why Multifactor Stochastic Volatility Models Work So Well
- Peter F. Christoffersen, Steven Heston, K. Jacobs
- Economics, Computer Science
- Manag. Sci.
- 1 December 2009
State-of-the-art stochastic volatility models generate a "volatility smirk" that explains why out-of themoney index puts have high prices relative to Black-Scholes benchmark. Expand
The Determinants of Credit Default Swap Premia
Variables that in theory determine credit spreads have limited explanatory power in existing empirical work on corporate bond data. We investigate the linear relationship between theoretical… Expand
Is the Potential for International Diversi?cation Disappearing? A Dynamic Copula Approach
International equity markets are characterized by nonlinear dependence and asymmetries. We propose a new dynamic asymmetric copula model to capture long-run and short-run dependence, multivariate… Expand
Option Valuation with Conditional Skewness
There is extensive empirical evidence that index option prices systematically differ from Black-Scholes prices. Out-of-the-money put prices (and in-the-money call prices) are relatively high compared… Expand
Does Realized Skewness Predict the Cross-Section of Equity Returns?
- Diego Amaya, P. Christoffersen, P. Christoffersen, P. Christoffersen, K. Jacobs, Aurelio Vásquez
- 9 March 2015
We use intraday data to compute weekly realized moments for equity returns and study their time-series and cross-sectional properties. Buying stocks in the lowest realized skewness decile and selling… Expand
The Importance of the Loss Function in Option Valuation
We illustrate the importance of the loss function in an application of the so-called Practitioner Black-Scholes model. Expand
Which GARCH Model for Option Valuation?
This paper compares a range of GARCH models along a different dimension, using option prices and returns under the risk-neutral as well as the physical probability measure. Expand
Volatility Dynamics for the S&P500: Evidence from Realized Volatility, Daily Returns and Option Prices
Most recent empirical option valuation studies build on the affine square root (SQR) stochastic volatility model. The SQR model is a convenient choice, because it yields closed-form solutions for… Expand
Option Valuation with Conditional Heteroskedasticity and Nonnormality
We provide results for the valuation of European style contingent claims for a large class of speci…cations of the underlying asset returns. Our valuation results obtain in a discrete time, in…nite… Expand
Capturing Option Anomalies with a Variance-Dependent Pricing Kernel
We develop a GARCH option model with a new pricing kernel allowing for a variance premium. While the pricing kernel is monotonic in the stock return and in variance, its projection onto the stock… Expand