Investors' Heterogeneity and Implied Volatility Smiles

• 成果类型: Article
• 署名作者: Li, Tao
• 署名单位: City University of Hong Kong
• 刊物名称: MANAGEMENT SCIENCE
• ISSN/ISSBN: 0025-1909
• DOI: 10.1287/mnsc.2013.1712
• 发表日期: 2013
• 页码: 2392-2412
• 关键词: equilibrium model; heterogeneous beliefs; Heterogeneous preferences; learning; option pricing; Volatility smile

摘要

Heterogeneity in beliefs and time preferences among investors make stock volatility stochastic, even though the volatility of the underlying dividend is constant. Prices of the European options written on this stock admit closed-form solutions, hence their hedging deltas. The Black-Scholes implied volatility surface, which depends on wealth distribution, investors' beliefs, and time preferences, exhibits observed patterns that are widely documented in various options markets. Along with benchmark models, the model is calibrated weekly to the S&P 500 index options from January 1996 to April 2006. It shows comparable performance to the stochastic volatility and jump model and outperforms the traders' rules and two no-arbitrage models (stochastic volatility, and stochastic volatility and stochastic interest rate) in terms of out-of-sample pricing errors.