The Price of Correlation Risk: Evidence from Equity Options

• 成果类型: Article
• 署名作者: Driessen, Joost; Maenhout, Pascal J.; Vilkov, Grigory
• 署名单位: University of Amsterdam
• 刊物名称: JOURNAL OF FINANCE
• ISSN/ISSBN: 0022-1082
• DOI: 10.1111/j.1540-6261.2009.01467.x
• 发表日期: 2009
• 页码: 1377-1406
• 关键词: IMPLIED VOLATILITY; returns; MODEL; arbitrage; premia; jump

摘要

We study whether exposure to marketwide correlation shocks affects expected option returns, using data on S&P100 index options, options on all components, and stock returns. We find evidence of priced correlation risk based on prices of index and individual variance risk. A trading strategy exploiting priced correlation risk generates a high alpha and is attractive for CRRA investors without frictions. Correlation risk exposure explains the cross-section of index and individual option returns well. The correlation risk premium cannot be exploited with realistic trading frictions, providing a limits-to-arbitrage interpretation of our finding of a high price of correlation risk.