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NATIONAL BUREAU OF ECONOMIC RESEARCH

NBER Publications by Michal Czerwonko

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August 2010Are Options on Index Futures Profitable for Risk Averse Investors? Empirical Evidence
with George M. Constantinides, Jens Carsten Jackwerth, Stylianos Perrakis: w16302
American options on the S&P 500 index futures that violate the stochastic dominance bounds of Constantinides and Perrakis (2007) from 1983 to 2006 are identified as potentially profitable trades. Call bid prices more frequently violate their upper bound than put bid prices do, while violations of the lower bounds by ask prices are infrequent. In out of sample tests of stochastic dominance, the writing of options that violate the upper bound increases the expected utility of any risk averse investor holding the market and cash, net of transaction costs and bid ask spreads. The results are economically significant and robust.

Published: George M. Constantinides & Michal Czerwonko & Jens Carsten Jackwerth & Stylianos Perrakis, 2011. "Are Options on Index Futures Profitable for Riskā€Averse Investors? Empirical Evidence," Journal of Finance, American Finance Association, vol. 66(4), pages 1407-1437, 08. citation courtesy of

Contact and additional information for this authorAll NBER papers and publicationsNBER Working Papers only

 
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