Department of Finance
Kellogg School of Management
2001 Sheridan Road
NBER Working Papers and Publications
|August 2015||The Pricing of Short-Term market Risk: Evidence from Weekly Options|
with Torben G. Andersen, Nicola Fusari: w21491
We study short-term market risks implied by weekly S&P 500 index options. The introduction of weekly options has dramatically shifted the maturity profile of traded options over the last five years, with a substantial proportion now having expiry within one week. Economically, this reflects a desire among investors for actively managing their exposure to very short-term risks. Such short-dated options provide an easy and direct way to study market volatility and jump risks. Unlike longer-dated options, they are largely insensitive to the risk of intertemporal shifts in the economic environment, i.e., changes in the investment opportunity set. Adopting a novel general semi-nonparametric approach, we uncover variation in the shape of the negative market jump tail risk which is not spanned by...
|May 2012||Parametric Inference and Dynamic State Recovery from Option Panels|
with Torben G. Andersen, Nicola Fusari: w18046
We develop a new parametric estimation procedure for option panels observed with error which relies on asymptotic approximations assuming an ever increasing set of observed option prices in the moneyness- maturity (cross-sectional) dimension, but with a fixed time span. We develop consistent estimators of the parameter vector and the dynamic realization of the state vector that governs the option price dynamics. The estimators converge stably to a mixed-Gaussian law and we develop feasible estimators for the limiting variance. We provide semiparametric tests for the option price dynamics based on the distance between the spot volatility extracted from the options and the one obtained nonparametrically from high-frequency data on the underlying asset. We further construct new formal tests o...
Published: Torben G. Andersen & Nicola Fusari & Viktor Todorov, 2015. "Parametric Inference and Dynamic State Recovery From Option Panels," Econometrica, vol 83(3), pages 1081-1145. citation courtesy of