Views
3 years ago

Monotonicity of the stochastic discount factor and expected option ...

Monotonicity of the stochastic discount factor and expected option ...

Table IAverage Returns

Table IAverage Returns for option strategies on the S&P 500 indexThis table reports weekly average buy and hold returns for some option trading strategieson the S&P 500 index that are special cases of the log-concave class of payout functions.Strike groups are defined using the following procedure: For each buying date we find theoption contract which has a strike price that is closest to the price of the underlying securityand assign that to strike group 3. The next two higher strikes are assigned to groups 4and 5 respectively. Similarly, the previous two lower strikes are assigned to groups 1 and 2respectively. Returns are calculated based on prices observed on Tuesdays. “ ∗ ” indicatesthe strike group for which the average return difference between the strike group and itsimmediate lower strike group is negative and statistically significant at the 5% level thusviolating strict monotoncity.Table I: Average returns by strike groupPanel A: call returnsStrike Group 1 2 3 4 5Average returns 0.024 0.028 0.036 0.042 0.046t statistics 0.774 0.822 0.927 0.899 0.830Panel B: put returnsStrike Groups 1 2 3 4 5Average returns -0.140 -0.120 -0.105 -0.090 -0.078t statistics -3.172 -2.834 -2.618 -2.419 -2.258Panel C: binary call returnsStrike Groups 1 2 3 4 5Average returns -0.029 0.004 -0.008 0.041 0.042t statistics -1.550 0.208 -0.344 1.488 1.257Panel D: bullish call returnsStrike Groups 1 2 3 4 5Average returns 0.004 -0.008 0.041 0.042 0.068t statistics 0.208 -0.344 1.488 1.257 1.706Panel E: (modified) butterfly spread returnsStrike Groups 1 2 3 4 5Average returns 0.470 0.507 0.276 ∗ 0.392 0.525t statistics 2.840 4.008 2.584 2.803 4.38945

Table IIAverage Return Differences for option strategies on individualstocksThis table reports differences of weekly average buy and hold returns for some option tradingstrategies that are special cases of the log-concave class of payout functions. Strike groupsare defined using the following procedure: For each underlying stock and buying date wefind the option contract which has a strike price that is closest to the price of the underlyingstock and assign that to strike group 3. The next two higher strikes are assigned to groups4 and 5 respectively. Similarly, the previous two lower strikes are assigned to groups 1 and 2respectively. The options must satisfy the following conditions to be included in the sample:(1) The bid price is strictly larger than $0.125, (2) the ask price is greater than the bid price,(3) the underlying stock does not have an ex-dividend date prior to maturity and (4) theoption prices satisfies a no-arbitrage restriction. R s denotes the return on the underlyingstock and R f denotes the risk-free rate.Table II: Average return differences by strike groupPanel A: call returnsStrike Groups 1-R s 2 -1 3 -2 4 -3 5 -4Average returns 0.010 0.006 0.014 0.102 0.070t statistics 2.33 2.25 2.23 8.81 3.82Skewness adjusted t statistics 2.30 2.25 2.28 15.07 6.27Panel B: put returnsStrike Groups 2 -1 3 -2 4 -3 5 -4 R f - 5Average returns 0.002 -0.004 0.013 0.012 0.016t statistics 0.07 -0.36 0.97 1.73 2.27Skewness adjusted t statistics 0.17 -0.39 0.85 1.63 2.19Panel C: butterfly spread returnsStrike Groups 2 -1 3 -2 4 -3 5 -4Average returns - -0.009 0.079 0.187 0.133t statistics - -0.99 4.36 4.14 1.98Skewness adjusted t statistics - -1.01 4.62 7.14 2.26Panel D: binary call returnsStrike Groups 1-R f 2 -1 3 -2 4 -3 5 -4Average returns 0.049 0.000 0.006 0.059 0.225t statistics 8.19 0.04 0.54 3.30 3.04Skewness adjusted t statistics 7.68 0.04 0.63 3.70 5.63Panel E: (modified) bullish call returnsStrike Groups 2 -1 3 -2 4 -3 5 -4Average returns - 0.097 0.047 0.185 0.099t statistics - 8.47 3.19 9.49 2.94Skewness adjusted t statistics - 5.31 4.07 9.82 6.0046

Stochastic Discount Factors and Real Options - Annual International ...
Valuation Theory: Stochastic Discount Factor Stochastic Discount ...
Stochastic Discount Factor Approach to International Risk-Sharing ...
Estimating the Stochastic Discount Factor without a ... - Economics
the Functional Stochastic Discount Factor - MIT
Pricing Kernels and Stochastic Discount Factors - University of North ...
Econometric specification of stochastic discount factor models.pdf
A Stochastic Discount Factor Approach to Asset Pricing Using Panel ...
Nonparametric Stochastic Discount Factor Decomposition - EPGE/FGV
Latent Variable Models for Stochastic Discount Factors
Pricing Stock Options under Stochastic Volatility - SOM Research ...
The Present Value Model with Stochastic Discount Rate and an ...
Pricing Currency Options Under Stochastic Volatility
Why Do Firms With Diversification Discounts Have Higher Expected ...
Option Prices with Stochastic Interest Rates – Black/Scholes and Ho ...
Option Prices with Stochastic Interest Rates – Black/Scholes and Ho ...