Rare disaster probability and options pricing
成果类型：
Article
署名作者：
Barro, Robert J.; Liao, Gordon Y.
署名单位：
Harvard University; Federal Reserve System - USA; Federal Reserve System Board of Governors
刊物名称：
JOURNAL OF FINANCIAL ECONOMICS
ISSN/ISSBN：
0304-405X
DOI：
10.1016/j.jfineco.2020.10.001
发表日期：
2021
页码：
750-769
关键词：
摘要：
We derive an options-pricing formula from recursive preferences and estimate rare disaster probability. The new options-pricing formula applies to far out-of-the-money put options on the stock market when disaster risk dominates, the size distribution of disasters follows a power law, and the economy has a representative agent with a constant-relative-risk-aversion utility function. The formula conforms with options data on the Standard & Poor's (S&P) 500 Index from 1983 to 2018 and for analogous indices for other countries. The disaster probability, inferred from monthly fixed effects, is highly correlated across countries, peaks during the Global Financial Crisis, and forecasts rates of economic growth. (C) 2020 Published by Elsevier B.V.