Arbeitspapier
Options-pricing formula with disaster risk
A new options-pricing formula applies to far-out-of-the money put options on the stock market when disaster risk dominates, the size distribution of disasters follows a power law, and the economy has a representative agent with Epstein-Zin utility. The elasticity of the put-options price is one with respect to maturity and above one with respect to exercise price. An additional term reflects the volatility of disaster probability. The formula conforms with data on put-options prices for the U.S. S&P index from 1983 to 2017 and for analogous indices for other countries starting in the mid-1990s. The estimated disaster probability, inferred from monthly fixed effects, is highly correlated across countries and peaks during the financial crisis of 2008-09. The U.S. peak is more dramatic in the stock-market crash of October 1987. The estimated U.S. disaster probability is highly positively correlated with the VIX indicator.
- Sprache
-
Englisch
- Erschienen in
-
Series: AEI Economics Working Paper ; No. 2017-24
- Klassifikation
-
Wirtschaft
- Thema
-
Economic growth
Stock market
economic risk
Gross Domestic Product (GDP)
- Ereignis
-
Geistige Schöpfung
- (wer)
-
Barro, Robert J.
Liao, Gordon
- Ereignis
-
Veröffentlichung
- (wer)
-
American Enterprise Institute (AEI)
- (wo)
-
Washington, DC
- (wann)
-
2017
- Handle
- Letzte Aktualisierung
-
10.03.2025, 11:41 MEZ
Datenpartner
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. Bei Fragen zum Objekt wenden Sie sich bitte an den Datenpartner.
Objekttyp
- Arbeitspapier
Beteiligte
- Barro, Robert J.
- Liao, Gordon
- American Enterprise Institute (AEI)
Entstanden
- 2017
Ähnliche Objekte (12)
Consumption-based asset pricing with rare disaster risk
Pricing Kernels and Risk Premia implied in Bitcoin Options
Credit risk and disaster risk
Empirical Asset Pricing with Multi-Period Disaster Risk: A Simulation-Based Approach
Two-dimensional risk neutral valuation relationships for the pricing of options
Purchase decisions with non-linear pricing options under risk: experimental evidence
Landslides - disaster risk reduction
Strategic pricing of financial options
Pricing Bermudan options using regression
Introduction to the mathematics of finance : from risk management to options pricing
Consumption-Based Asset Pricing with Rare Disaster Risk: A Simulated Method of Moments Approach
Industrial Disaster Risk Management - Theme 15: Industrial Disaster Response
Consumption-based asset pricing with rare disaster risk
Pricing Kernels and Risk Premia implied in Bitcoin Options
Credit risk and disaster risk
Empirical Asset Pricing with Multi-Period Disaster Risk: A Simulation-Based Approach
Two-dimensional risk neutral valuation relationships for the pricing of options
Purchase decisions with non-linear pricing options under risk: experimental evidence
Landslides - disaster risk reduction
Strategic pricing of financial options
Pricing Bermudan options using regression
Introduction to the mathematics of finance : from risk management to options pricing
Consumption-Based Asset Pricing with Rare Disaster Risk: A Simulated Method of Moments Approach
Industrial Disaster Risk Management - Theme 15: Industrial Disaster Response
Consumption-based asset pricing with rare disaster risk
Pricing Kernels and Risk Premia implied in Bitcoin Options
Credit risk and disaster risk
Empirical Asset Pricing with Multi-Period Disaster Risk: A Simulation-Based Approach
Two-dimensional risk neutral valuation relationships for the pricing of options
Purchase decisions with non-linear pricing options under risk: experimental evidence
Landslides - disaster risk reduction
Strategic pricing of financial options
Pricing Bermudan options using regression
Introduction to the mathematics of finance : from risk management to options pricing
Consumption-Based Asset Pricing with Rare Disaster Risk: A Simulated Method of Moments Approach