Add to ORKGContrary to the Black-Scholes model, volatilities implied by index option prices depend on the exercise price of the option and are often higher than realized volatilities. We explain both facts in the context of a model that can also explain the mean and volatility of equity returns. Our model assumes a small risk of a rare disaster that is calibrated based on the international data on large consumption declines. We allow the risk of this rare disaster to be stochastic, which turns out to be crucial to the model’s ability to explain both equity volatility and option prices. We explore different specifications for the stochastic rare disaster probability and show that the data favor a multifrequency process. Finally, we show that the model ...
After lying dormant for more than two decades, the rare disaster framework has emerged as a leading ...
The rare disaster hypothesis suggests that the extraordinarily high postwar U.S. equity premium resu...
Because volatility of the underlying asset price is a critical factor affecting option prices and he...
The first chapter "Option Prices in a Model with Stochastic Disaster Risk, " co-authored w...
After laying dormant for more than two decades, the rare disaster framework has emerged as a leading...
After lying dormant for more than two decades, the rare disaster framework has emerged as a leading ...
The first chapter Option Prices in a Model with Stochastic Disaster Risk, co-authored with Jessica...
The first chapter Option Prices in a Model with Stochastic Disaster Risk, co-authored with Jessica...
We use prices of equity index options to quantify the impact of extreme events on asset returns. We ...
We use equity index options to quantify the distribution of consumption growth disasters. The challe...
We use equity index options to quantify the distribution of consumption growth disasters. The challe...
We use equity index options to quantify the distribution of consumption growth disasters. The challe...
We use equity index options to quantify the distribution of consumption growth disasters. The challe...
After lying dormant for more than two decades, the rare disaster framework has emerged as a leading ...
This paper presents a model for option pricing in markets that experience financial crashes. The sto...
After lying dormant for more than two decades, the rare disaster framework has emerged as a leading ...
The rare disaster hypothesis suggests that the extraordinarily high postwar U.S. equity premium resu...
Because volatility of the underlying asset price is a critical factor affecting option prices and he...
The first chapter "Option Prices in a Model with Stochastic Disaster Risk, " co-authored w...
After laying dormant for more than two decades, the rare disaster framework has emerged as a leading...
After lying dormant for more than two decades, the rare disaster framework has emerged as a leading ...
The first chapter Option Prices in a Model with Stochastic Disaster Risk, co-authored with Jessica...
The first chapter Option Prices in a Model with Stochastic Disaster Risk, co-authored with Jessica...
We use prices of equity index options to quantify the impact of extreme events on asset returns. We ...
We use equity index options to quantify the distribution of consumption growth disasters. The challe...
We use equity index options to quantify the distribution of consumption growth disasters. The challe...
We use equity index options to quantify the distribution of consumption growth disasters. The challe...
We use equity index options to quantify the distribution of consumption growth disasters. The challe...
After lying dormant for more than two decades, the rare disaster framework has emerged as a leading ...
This paper presents a model for option pricing in markets that experience financial crashes. The sto...
After lying dormant for more than two decades, the rare disaster framework has emerged as a leading ...
The rare disaster hypothesis suggests that the extraordinarily high postwar U.S. equity premium resu...
Because volatility of the underlying asset price is a critical factor affecting option prices and he...