The risk and return of equity and credit index options

• 成果类型: Article
• 署名作者: Doshi, Hitesh; Ericsson, Jan; Fournier, Mathieu; Seo, Sang Byung
• 署名单位: University of Houston System; University of Houston; McGill University; University of Wisconsin System; University of Wisconsin Madison
• 刊物名称: JOURNAL OF FINANCIAL ECONOMICS
• ISSN/ISSBN: 0304-405X
• DOI: 10.1016/j.jfineco.2024.103932
• 发表日期: 2024
• 关键词: Structural credit risk model; Compound options; Credit index options; Pricing consistency

摘要

We develop a structural credit risk model, which allows us to price equity/credit indices and their options through the asset dynamics of index constituents. We estimate the model via MLE and find that equity and credit index option prices are well explained out-of-sample. Contrary to recent empirical findings, the two option markets are not inconsistently priced through the lens of our model. Returns on both options, while extreme, do not indicate any evidence of mispricing. Our analysis suggests that jointly addressing the pricing of various instruments requires properly attributing three different sources of systematic risk: asset, variance, and jump risks.