Option Profit and Loss Attribution and Pricing: A New Framework

• 成果类型: Article
• 署名作者: Carr, Peter; Wu, Liuren
• 署名单位: New York University; City University of New York (CUNY) System; Baruch College (CUNY)
• 刊物名称: JOURNAL OF FINANCE
• ISSN/ISSBN: 0022-1082
• DOI: 10.1111/jofi.12894
• 发表日期: 2020
• 页码: 2271-2316
• 关键词: interest-rates; term structure; STOCK-OPTIONS; volatility; RISK; bond

摘要

This paper develops a new top-down valuation framework that links the pricing of an option investment to its daily profit and loss attribution. The framework uses the Black-Merton-Scholes option pricing formula to attribute the short-term option investment risk to variation in the underlying security price and the option's implied volatility. Taking risk-neutral expectation and demanding no dynamic arbitrage result in a pricing relation that links an option's fair implied volatility level to the underlying volatility level with corrections for the implied volatility's own expected direction of movement, its variance, and its covariance with the underlying security return.