Dark Matter in (Volatility and) Equity Option Risk Premiums

• 成果类型: Article
• 署名作者: Bakshi, Gurdip; Crosby, John; Gao, Xiaohui
• 署名单位: Pennsylvania Commonwealth System of Higher Education (PCSHE); Temple University; Old Dominion University
• 刊物名称: OPERATIONS RESEARCH
• ISSN/ISSBN: 0030-364X
• DOI: 10.1287/opre.2022.2360
• 发表日期: 2022
• 页码: 3108-3124
• 关键词: jump; diffusion; returns; fears; MODEL

摘要

Emphasizing the statistics of jumps crossing the strike and local time, we develop a decomposition of equity option risk premiums. Operationalizing this theoretical treatment, we equip the pricing kernel process with unspanned risks, embed (unspanned) jump risks, and allow equity return volatility to contain unspanned risks. Unspanned risks are consistent with negative risk premiums for jumps crossing the strike and local time and imply negative risk premiums for out-of-the-money call options and straddles. The empirical evidence from weekly and farther-dated index options is supportive of our theory of economically relevant unspanned risks and reveals darkmatter in option risk premiums.