How Integrated are Credit and Equity Markets? Evidence from Index Options

• 成果类型: Article
• 署名作者: Collin-Dufresne, Pierre; Junge, Benjamin; Trolle, Anders B.
• 署名单位: Swiss Federal Institutes of Technology Domain; Ecole Polytechnique Federale de Lausanne; Swiss Finance Institute (SFI); Copenhagen Business School; Copenhagen Business School
• 刊物名称: JOURNAL OF FINANCE
• ISSN/ISSBN: 0022-1082
• DOI: 10.1111/jofi.13300
• 发表日期: 2024
• 页码: 949-992
• 关键词: CORPORATE-DEBT; risk premia; SPREAD; valuation; arbitrage; FRAMEWORK; common

摘要

We study the extent to which credit index (CDX) options are priced consistent with S&P 500 (SPX) equity index options. We derive analytical expressions for CDX and SPX options within a structural credit-risk model with stochastic volatility and jumps using new results for pricing compound options via multivariate affine transform analysis. The model captures many aspects of the joint dynamics of CDX and SPX options. However, it cannot reconcile the relative levels of option prices, suggesting that credit and equity markets are not fully integrated. A strategy of selling CDX volatility yields significantly higher excess returns than selling SPX volatility.