Cheuk, Terry H. F.
[VerfasserIn]
;
Dyrting, Sigurd
[Sonstige Person, Familie und Körperschaft];
Carverhill, Andrew P.
[Sonstige Person, Familie und Körperschaft]
Anmerkungen:
Nach Informationen von SSRN wurde die ursprüngliche Fassung des Dokuments February 14, 2009 erstellt
Beschreibung:
In the Samp;P500 futures options, we identify 3 factors, corresponding to movements in the underlying, parallel movements, and tilting of the cross section of implied volatilities (the quot;smirk factor''). We relate these factors non-linearly to movements in the option prices. They are diffusive in nature, have significant associated risk premia, and can account for an overwhelming part of the option price movements.We interpret the options smirk, which is the notion that out-of-the-money (OTM) puts seem expensive relative to out-of-the-money (OTM) calls, in terms of the prices of these risk factors. Going short OTM puts and long OTM calls, corresponding to the third factor, makes a profit on average, but this corresponds to its risk premium, and does not represent a market inefficiency.Our smirk factor is useful for hedging, but it is not related movements in the underlying, and does not fit into the framework of the jump-diffusion models