The Smirk in the S&P500 Futures Options Prices: a Linearized Factor Analysis
We construct portfolios of S&P500 futures and their associated options, which are Delta (price) and Vega (volatility) neutral. These systematically earn negative returns net of financing costs, and suggest that out of the money puts are too expensive, relative to out of the money calls. We give evidence that these negative returns are not a payment for insurance against a market crash. We then do a factor analysis on the Delta hedged option price innovations. Including a smirk factor, there is no evidence of arbitrage opportunities, and the risk premium on this factor accounts for the smirk. The smirk seems unable to predict the skew in the underlying return, but is related to the small firm effect and is useful for hedging portfolios of options.
Andrew Carverhill Terry H. F. Cheuk Sigurd Dyrting
School of Business, University of Hong Kong, Pokfulam Road, Hong Kong Deutsche Bank, 20 Finsbury Circus, London EC2M 1NB, UK
国际会议
成都
英文
1-39
2007-07-09（万方平台首次上网日期，不代表论文的发表时间）