Disasters Implied by Equity Index Options

Journal of Finance - Tập 66 Số 6 - Trang 1969-2012 - 2011
David Backus1, Mikhail Chernov2, Ian Martin3
1New York University
2London Business School
3Stanford University

Tóm tắt

ABSTRACTWe use equity index options to quantify the distribution of consumption growth disasters. The challenge lies in connecting the risk‐neutral distribution of equity returns implied by options to the true distribution of consumption growth. First, we compare pricing kernels constructed from macro‐finance and option‐pricing models. Second, we compare option prices derived from a macro‐finance model to those we observe. Third, we compare the distribution of consumption growth derived from option prices using a macro‐finance model to estimates based on macroeconomic data. All three perspectives suggest that options imply smaller probabilities of extreme outcomes than have been estimated from macroeconomic data.

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