Cross-Sectional Variation of Option-Implied Volatility Skew

• 成果类型: Article; Early Access
• 署名作者: Wu, Liuren; Tian, Meng
• 署名单位: City University of New York (CUNY) System; Baruch College (CUNY)
• 刊物名称: MANAGEMENT SCIENCE
• ISSN/ISSBN: 0025-1909
• DOI: 10.1287/mnsc.2023.4872
• 发表日期: 2023
• 关键词: implied volatility skew; risk-neutral return skewness; cyclicality; default risk; structural risk exposures; information flow; stock return prediction

摘要

The stock option-implied volatility skew reflects both the structural risk characteristics of the underlying company and the short-term information flow about the stock price movement. This paper builds a semistructural, cross-sectional option pricing model to separate the structural risk contributions from the information flow. The model identifies two structural risk sources that contribute to the cross-sectional variation of the skew: the company's business cyclicality and its default risk. The model can explain as much as 44% of the cross-sectional variation in implied volatility skew and is particularly informative during and after recessions. The remaining skew variation reflects mainly short-term information flow and can be used to construct stock portfolios with much better investment performance and without hidden structural risk exposures.