The leverage effect and the basket-index put spread

• 成果类型: Article
• 署名作者: Bai, Jennie; Goldstein, Robert S.; Yang, Fan
• 署名单位: Georgetown University; University of Minnesota System; University of Minnesota Twin Cities; National Bureau of Economic Research; University of Connecticut
• 刊物名称: JOURNAL OF FINANCIAL ECONOMICS
• ISSN/ISSBN: 0304-405X
• DOI: 10.1016/j.jfineco.2018.07.015
• 发表日期: 2019
• 页码: 186-205
• 关键词: Leverage effect; Option price; Credit spread; volatility

摘要

Benchmark models that exogenously specify equity dynamics cannot explain the large spread in prices between put options written on individual banks and options written on the bank index during the financial crisis. However, theory requires that asset dynamics be specified exogenously and that endogenously determined equity dynamics exhibit a leverage effect that increases put prices by fattening the left tail of the distribution. The leverage effect is larger for puts on individual stocks than for puts on the index, thus increasing the basket-index spread. Time-series and cross-sectional variation in the leverage effect explains option prices well. (C) 2018 Elsevier B.V. All rights reserved.