Conditional Expected Option Returns

Conditional Expected Option Returns

• Autor
• Caio Almeida
• Co-autores
• Fousseni Chabi Yo , Gustavo Freire
• Resumo

• This paper extends option-implied formulas of the expected market return to obtain conditional expected option returns. Relative to existing pricing kernel specifications, we show that allowing for heterogeneous preferences towards left and right tails is key to accurately fit realized call and put option returns. Using our time series of conditional expected option returns, we find that: alphas with respect to conditional expected market returns are strongly significant, where both calls and puts have negative betas; compensation for upside, downside and variance risk is higher during economic downturns and high-volatility periods; and there is a strong factor structure in option returns, dominated by level and moneyness-slope factors.

• Palavras-chave
• conditional expectations, option-implied, option returns, pricing kernel, risk premium
• Modalidade
• Comunicação oral
• Área Temática
• Apreçamento de Ativos

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