Why are those options smiling?

التفاصيل البيبلوغرافية
العنوان: Why are those options smiling?
المؤلفون: Ederington, Louis H, Guan, Wei
سنة النشر: 2011
المجموعة: University of Otago: Research Archive (OUR Archive)
مصطلحات موضوعية: Black-Scholes implied volatilities, stock index options, Black-Scholes smile, pre-transaction-cost basis, HF Commerce, HF5601 Accounting, HG Finance
الوصف: This paper tests whether the true smile in implied volatilities is flat. The smile in observed Black-Scholes implied volatilities has often been attributed to deficiencies in the B-S model, such as the assumption of constant volatility, which cause the implied volatilities calculated using the B-S formula to differ from the true volatilities. If such deficiencies are the sole cause, then if the implied volatilities were calculated correctly (i.e., using the true though possibly unknown model), the smile should disappear or become flat. Using stock index options data, we test and reject the hypothesis that the true smile in stock index option prices is flat. If the true smile is flat, then a trading strategy in which one buys options at the bottom of the incorrect Black-Scholes smile and sells options at the top(s) should not be profitable even on a pre-transaction-cost basis. However, we find that such a delta-gamma neutral strategy yields substantial pre-transaction-cost profits. Moreover, the profits are large when the B-S model predicts large profits and small when small profits are predicted. Our results indicate that while part of the observed Black-Scholes smile appears due to deficiencies in the Black-Scholes model, a substantial part reflects a smile in the true implied volatilities. We argue that the true smile persists despite these substantial pretransaction-cost profits, because maintaining the trading portfolio’s original low risk profile requires frequent re-balancing which quickly eats away the profits. ; Unpublished ; Non Peer Reviewed ; Amin, K. I., 1993, Jump diffusion option valuation in discrete time, Journal of Finance 48, 1833-1863. Amin, K.I. and V. Ng, 1993, Option valuation with systematic stochastic volatility, Journal of Finance 48, 881-910. Ball, C., and W. Torous, 1985, On jumps in common stock prices and their impact on call option pricing, Journal of Finance 40, 155-173. Bates, D. S., 1996, Jumps and stochastic volatility: exchange rate processes implicit in Deutschemark options, ...
نوع الوثيقة: conference object
وصف الملف: application/pdf
اللغة: unknown
Relation: University of Otago Department of Finance Seminar Series; http://www.business.otago.ac.nz/finc/research/seminars_01.html; http://hdl.handle.net/10523/1532; 596
الاتاحة: http://hdl.handle.net/10523/1532
رقم الانضمام: edsbas.8336A73B
قاعدة البيانات: BASE