000177302 001__ 177302
000177302 005__ 20180122233519.0
000177302 037__ $$a1744-2016-140891
000177302 041__ $$aen_US
000177302 084__ $$aG13
000177302 084__ $$aG12
000177302 245__ $$aAnalogy Making and the Puzzles of Index Option Returns and Implied Volatility Skew: Theory and Empirical Evidence
000177302 260__ $$c2014-07-08
000177302 269__ $$a2014-07-08
000177302 270__ $$mh.siddiqi@uq.edu.au$$pSiddiqi,   Hammad
000177302 300__ $$a39
000177302 336__ $$aWorking or Discussion Paper
000177302 490__ $$aFinance
000177302 490__ $$aF14_4
000177302 520__ $$aConstantinides et al (2013) put forward a number of empirical findings regarding leverage adjusted S&P 500 index option returns. Their findings are puzzling in the context of the Black-Scholes-Merton Option Pricing Model and the Capital Asset Pricing Model. Experimental evidence as well as the opinions of experienced market professionals indicate that call options are valued in analogy with the underlying stock. In this article, the implications of such analogy making for option pricing are explored, and the resulting analogy based option pricing model is put forward. In a one period binomial setting, I show the conditions under which arbitrage profits cannot be made against the analogy makers ensuring their survival. I show that the analogy model is consistent with the empirical findings in Constantinides et al (2013). Furthermore, the analogy model generates the implied volatility skew. Two predictions of the analogy model are also empirically tested and are found to be strongly supported in the data.
000177302 542__ $$fLicense granted by Evelyn  Smart (e.smart@uq.edu.au) on 2014-07-10T03:02:01Z (GMT):

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000177302 650__ $$aFinancial Economics
000177302 6531_ $$aOption Pricing
000177302 6531_ $$aAnalogy Making
000177302 6531_ $$aLeverage Adjusted Returns
000177302 6531_ $$aRisk Premium
000177302 6531_ $$aImplied Volatility Skew
000177302 6531_ $$aImplied Volatility
000177302 700__ $$aSiddiqi, Hammad
000177302 8564_ $$s515361$$uhttp://ageconsearch.umn.edu/record/177302/files/WPF14_4.pdf
000177302 887__ $$ahttp://purl.umn.edu/177302
000177302 909CO $$ooai:ageconsearch.umn.edu:177302$$pGLOBAL_SET
000177302 912__ $$nSubmitted by Evelyn  Smart (e.smart@uq.edu.au) on 2014-07-10T03:06:14Z
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000177302 912__ $$nMade available in DSpace on 2014-07-10T03:06:14Z (GMT). No. of bitstreams: 1
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  Previous issue date: 2014-07-08
000177302 982__ $$gUniversity of Queensland>School of Economics>Risk and Sustainable Management Group Working Papers
000177302 980__ $$a1744