Jump and volatility risk and risk premia: a new model and lessons from S&P 500 options
We use a novel pricing model to filter times series of diffusive volatility and jump intensity from S&P 500 index options. These two measures capture the ex-ante risk assessed by investors. We find that both components of risk vary substantially over time, are quite persistent, and correlate wit...
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| Main Authors: | , |
|---|---|
| Format: | Book |
| Language: | English |
| Published: |
Cambridge, Mass.
National Bureau of Economic Research
2004
|
| Series: | National Bureau of Economic Research <Cambridge, Mass.>: NBER working paper series
10912 |
| Subjects: | |
| Online Access: | Volltext |
| Summary: | We use a novel pricing model to filter times series of diffusive volatility and jump intensity from S&P 500 index options. These two measures capture the ex-ante risk assessed by investors. We find that both components of risk vary substantially over time, are quite persistent, and correlate with each other and with the stock index. Using a simple general equilibrium model with a representative investor, we translate the filtered measures of ex-ante risk into an ex-ante risk premium. We find that the average premium that compensates the investor for the risks implicit in option prices, 10.1 percent, is about twice the premium required to compensate the same investor for the realized volatility, 5.8 percent. Moreover, the ex-ante equity premium that we uncover is highly volatile, with values between 2 and 32 percent. The component of the premium that corresponds to the jump risk varies between 0 and 12 percent. |
| Physical Description: | 48 S. graph. Darst. |
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| id | DE-604.BV023591163 |
| illustrated | Illustrated |
| index_date | 2024-07-02T22:41:27Z |
| indexdate | 2024-07-09T21:25:10Z |
| institution | BVB |
| language | English |
| oai_aleph_id | oai:aleph.bib-bvb.de:BVB01-016906493 |
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| physical | 48 S. graph. Darst. |
| publishDate | 2004 |
| publishDateSearch | 2004 |
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| series | National Bureau of Economic Research <Cambridge, Mass.>: NBER working paper series |
| series2 | National Bureau of Economic Research <Cambridge, Mass.>: NBER working paper series |
| spelling | Santa-Clara, Pedro Verfasser (DE-588)128866861 aut Jump and volatility risk and risk premia a new model and lessons from S&P 500 options Pedro Santa-Clara ; Shu Yan Cambridge, Mass. National Bureau of Economic Research 2004 48 S. graph. Darst. txt rdacontent n rdamedia nc rdacarrier National Bureau of Economic Research <Cambridge, Mass.>: NBER working paper series 10912 We use a novel pricing model to filter times series of diffusive volatility and jump intensity from S&P 500 index options. These two measures capture the ex-ante risk assessed by investors. We find that both components of risk vary substantially over time, are quite persistent, and correlate with each other and with the stock index. Using a simple general equilibrium model with a representative investor, we translate the filtered measures of ex-ante risk into an ex-ante risk premium. We find that the average premium that compensates the investor for the risks implicit in option prices, 10.1 percent, is about twice the premium required to compensate the same investor for the realized volatility, 5.8 percent. Moreover, the ex-ante equity premium that we uncover is highly volatile, with values between 2 and 32 percent. The component of the premium that corresponds to the jump risk varies between 0 and 12 percent. Options (Finance) - Econometric models Optionspreistheorie / Volatilität / Risikoprämie / Index-Futures / USA Yan, Shu 1968- Verfasser (DE-588)129655341 aut Erscheint auch als Online-Ausgabe National Bureau of Economic Research <Cambridge, Mass.>: NBER working paper series 10912 (DE-604)BV002801238 10912 http://papers.nber.org/papers/w10912.pdf kostenfrei Volltext |
| spellingShingle | Santa-Clara, Pedro Yan, Shu 1968- Jump and volatility risk and risk premia a new model and lessons from S&P 500 options National Bureau of Economic Research <Cambridge, Mass.>: NBER working paper series Options (Finance) - Econometric models Optionspreistheorie / Volatilität / Risikoprämie / Index-Futures / USA |
| title | Jump and volatility risk and risk premia a new model and lessons from S&P 500 options |
| title_auth | Jump and volatility risk and risk premia a new model and lessons from S&P 500 options |
| title_exact_search | Jump and volatility risk and risk premia a new model and lessons from S&P 500 options |
| title_exact_search_txtP | Jump and volatility risk and risk premia a new model and lessons from S&P 500 options |
| title_full | Jump and volatility risk and risk premia a new model and lessons from S&P 500 options Pedro Santa-Clara ; Shu Yan |
| title_fullStr | Jump and volatility risk and risk premia a new model and lessons from S&P 500 options Pedro Santa-Clara ; Shu Yan |
| title_full_unstemmed | Jump and volatility risk and risk premia a new model and lessons from S&P 500 options Pedro Santa-Clara ; Shu Yan |
| title_short | Jump and volatility risk and risk premia |
| title_sort | jump and volatility risk and risk premia a new model and lessons from s p 500 options |
| title_sub | a new model and lessons from S&P 500 options |
| topic | Options (Finance) - Econometric models Optionspreistheorie / Volatilität / Risikoprämie / Index-Futures / USA |
| topic_facet | Options (Finance) - Econometric models Optionspreistheorie / Volatilität / Risikoprämie / Index-Futures / USA |
| url | http://papers.nber.org/papers/w10912.pdf |
| volume_link | (DE-604)BV002801238 |
| work_keys_str_mv | AT santaclarapedro jumpandvolatilityriskandriskpremiaanewmodelandlessonsfromsp500options AT yanshu jumpandvolatilityriskandriskpremiaanewmodelandlessonsfromsp500options |