Option Prices in a Model with Stochastic Disaster Risk

• 成果类型: Article
• 署名作者: Seo, Sang Byung; Wachter, Jessica A.
• 署名单位: University of Houston System; University of Houston; University of Pennsylvania; National Bureau of Economic Research
• 刊物名称: MANAGEMENT SCIENCE
• ISSN/ISSBN: 0025-1909
• DOI: 10.1287/mnsc.2017.2978
• 发表日期: 2019
• 页码: 3449-3469
• 关键词: implied volatilities; consumption disasters; kurtosis; jump diffusions

摘要

Contrary to well-known asset pricing models, volatilities implied by equity index options exceed realized stock market volatility and exhibit a pattern known as the volatility skew. We explain both facts using a model that can also account for the mean and volatility of equity returns. Our model assumes a small risk of economic disaster that is calibrated based on international data on large consumption declines. We allow the disaster probability to be stochastic, which turns out to be crucial to the model's ability both to match equity volatility and to reconcile option prices with macroeconomic data on disasters.