Treasury option returns and models with unspanned risks

• 成果类型: Article
• 署名作者: Bakshi, Gurdip; Crosby, John; Gao, Xiaohui; Hansen, Jorge W.
• 署名单位: Pennsylvania Commonwealth System of Higher Education (PCSHE); Temple University; Old Dominion University; Aarhus University
• 刊物名称: JOURNAL OF FINANCIAL ECONOMICS
• ISSN/ISSBN: 0304-405X
• DOI: 10.1016/j.jfineco.2023.103736
• 发表日期: 2023
• 关键词: Options on futures on Treasury bonds; Interest-rate models; Option risk premiums; Unspanned risks in the pricing kernel

摘要

We document the phenomenon that average excess returns of out-of-the-money puts and calls on bond futures are negative, both unconditionally and conditionally on economic states. To explain these findings, we develop economically motivated restrictions in the context of a theory in which the pricing kernel is a general diffusion process with spanned and unspanned components. Our reconciliation is a framework that introduces market incompleteness and priced unspanned volatility risks, allowing for time-varying downside and upside futures risk premiums. The estimated model shows consistency with data on bond yields, yield volatilities, bond futures return volatilities, option prices, and option risk premiums.