Is Systematic Risk Priced in Options?
In this empirical study, we challenge the prevalent notion that systematic risk of the underlying asset has no e.ect on option prices as long as the total risk remains fixed, a long cherished prediction of the Black-Scholes option pricing theory. We do so by examining two testable hypotheses relating both the level and slope of implied volatility curves to the systematic risk of the underlying asset. Using daily option quotes on the S&P 100 index and its 30 largest component stocks, we show that after controlling for the underlying asset’s total risk, a higher amount of systematic risk leads to a higher level of implied volatility and a steeper slope of the implied volatility curve. The findings are robust to various alternative specifications and estimations. Our empirical conclusions turn out to be consistent with the newly emerged GARCH option pricing theory.
Jin-Chuan Duan Jason Wei
Joseph L. Rotman School of Management, University of Toronto
国际会议
昆明
英文
1-40
2005-07-05（万方平台首次上网日期，不代表论文的发表时间）