Investment strategies based on the variance risk premium
Autor(a) principal: | |
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Data de Publicação: | 2019 |
Tipo de documento: | Dissertação |
Idioma: | eng |
Título da fonte: | Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos) |
Texto Completo: | http://hdl.handle.net/10400.14/29052 |
Resumo: | Every option trade relies on the investor’s disbelieve about the market forecast of the underlying security price and/or volatility. In this research, we explore the employment of options as a tool to bet against expectations of future volatility. We build decile portfolios by sorting stocks on the difference between the historical and the implied volatilities – known as the Variance Risk Premium. We then build three option-based investment strategies – Straddles, Delta-Hedged Calls and Delta-Hedged Puts, whose underlying securities are stocks across the decile portfolios. We find it possible to shape profitable zero-cost investment opportunities by going long on portfolio (10), comprised of derivative securities on underlying stocks with large positive variance risk premium, and selling short portfolio (1), comprised of derivative securities on underlying stocks with large negative variance risk premium. Our study documents that such strategies yield very appealing returns and perform well in terms of risk-return trade-off measures. Although with a small exposure to the market risk factor, these returns are not explained by the industry standard risk-factors models, nor by aggregate measures of jump and volatility risk. The profitability of our strategies persists even in the presence of transaction costs, which, although negatively impact the returns, fail to deplete them entirely. |
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Investment strategies based on the variance risk premiumInvestmentStrategiesOptionsVarianceRiskPremiumVolatilityInvestimentosEstratégiasOpçõesVariânciaRiscoPrémioVolatilidadeDomínio/Área Científica::Ciências Sociais::Economia e GestãoEvery option trade relies on the investor’s disbelieve about the market forecast of the underlying security price and/or volatility. In this research, we explore the employment of options as a tool to bet against expectations of future volatility. We build decile portfolios by sorting stocks on the difference between the historical and the implied volatilities – known as the Variance Risk Premium. We then build three option-based investment strategies – Straddles, Delta-Hedged Calls and Delta-Hedged Puts, whose underlying securities are stocks across the decile portfolios. We find it possible to shape profitable zero-cost investment opportunities by going long on portfolio (10), comprised of derivative securities on underlying stocks with large positive variance risk premium, and selling short portfolio (1), comprised of derivative securities on underlying stocks with large negative variance risk premium. Our study documents that such strategies yield very appealing returns and perform well in terms of risk-return trade-off measures. Although with a small exposure to the market risk factor, these returns are not explained by the industry standard risk-factors models, nor by aggregate measures of jump and volatility risk. The profitability of our strategies persists even in the presence of transaction costs, which, although negatively impact the returns, fail to deplete them entirely.Todo o trading de opções involve a descrença do investidor em relação à estimativa do mercado sobre o preço e/ou volatilidade do underlying security. Neste estudo, exploramos o uso de opções como uma ferramenta para apostar contra as expectativas de volatilidade dos retornos. Ordenando as ações com base no valor da diferença entre duas medidas de volatilidades, a histórica e a implícita, conhecida como o Prémio sobre o Risco de Volatilidade, construímos portfólios de decis. De seguida, construimos três estratégias de investimento com opções – Straddles, Delta-Hedged Calls e Delta-Hedged Puts. Documentamos ser possível construir oportunidades de investimento rentáveis ao comprar o portfólio (10), composto por opções sobre ações com um prémio sobre o risco de volatilidade alto e positivo, e ao vender o portfólio (1), composto por opções sobre ações com um prémio sobre o risco de volatilidade alto e negativo. As nossas estratégias geram retornos muito atraentes e apresentam um bom desempenho em termos de medidas de tarde-off entre o risco e o retorno. Embora com uma pequena exposição ao fator de risco do mercado, os nossos retornos não são explicados pelos modelos de fatores de risco tradicionais, nem por medidas agregadas de jumps ou de volatilidade. A lucratividade das estratégias persiste mesmo na presença de custos de transação, que, apesar de impactarem negativamente os retornos, não os esgotam por completo.Faias, José Afonso de Carvalho TavaresVeritati - Repositório Institucional da Universidade Católica PortuguesaNikanorova, Hanna2020-01-03T08:05:20Z2019-05-062019-05-06T00:00:00Zinfo:eu-repo/semantics/publishedVersioninfo:eu-repo/semantics/masterThesisapplication/pdfhttp://hdl.handle.net/10400.14/29052TID:202270750enginfo:eu-repo/semantics/openAccessreponame:Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos)instname:Agência para a Sociedade do Conhecimento (UMIC) - FCT - Sociedade da Informaçãoinstacron:RCAAP2023-07-12T17:34:35Zoai:repositorio.ucp.pt:10400.14/29052Portal AgregadorONGhttps://www.rcaap.pt/oai/openaireopendoar:71602024-03-19T18:23:20.140299Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos) - Agência para a Sociedade do Conhecimento (UMIC) - FCT - Sociedade da Informaçãofalse |
dc.title.none.fl_str_mv |
Investment strategies based on the variance risk premium |
title |
Investment strategies based on the variance risk premium |
spellingShingle |
Investment strategies based on the variance risk premium Nikanorova, Hanna Investment Strategies Options Variance Risk Premium Volatility Investimentos Estratégias Opções Variância Risco Prémio Volatilidade Domínio/Área Científica::Ciências Sociais::Economia e Gestão |
title_short |
Investment strategies based on the variance risk premium |
title_full |
Investment strategies based on the variance risk premium |
title_fullStr |
Investment strategies based on the variance risk premium |
title_full_unstemmed |
Investment strategies based on the variance risk premium |
title_sort |
Investment strategies based on the variance risk premium |
author |
Nikanorova, Hanna |
author_facet |
Nikanorova, Hanna |
author_role |
author |
dc.contributor.none.fl_str_mv |
Faias, José Afonso de Carvalho Tavares Veritati - Repositório Institucional da Universidade Católica Portuguesa |
dc.contributor.author.fl_str_mv |
Nikanorova, Hanna |
dc.subject.por.fl_str_mv |
Investment Strategies Options Variance Risk Premium Volatility Investimentos Estratégias Opções Variância Risco Prémio Volatilidade Domínio/Área Científica::Ciências Sociais::Economia e Gestão |
topic |
Investment Strategies Options Variance Risk Premium Volatility Investimentos Estratégias Opções Variância Risco Prémio Volatilidade Domínio/Área Científica::Ciências Sociais::Economia e Gestão |
description |
Every option trade relies on the investor’s disbelieve about the market forecast of the underlying security price and/or volatility. In this research, we explore the employment of options as a tool to bet against expectations of future volatility. We build decile portfolios by sorting stocks on the difference between the historical and the implied volatilities – known as the Variance Risk Premium. We then build three option-based investment strategies – Straddles, Delta-Hedged Calls and Delta-Hedged Puts, whose underlying securities are stocks across the decile portfolios. We find it possible to shape profitable zero-cost investment opportunities by going long on portfolio (10), comprised of derivative securities on underlying stocks with large positive variance risk premium, and selling short portfolio (1), comprised of derivative securities on underlying stocks with large negative variance risk premium. Our study documents that such strategies yield very appealing returns and perform well in terms of risk-return trade-off measures. Although with a small exposure to the market risk factor, these returns are not explained by the industry standard risk-factors models, nor by aggregate measures of jump and volatility risk. The profitability of our strategies persists even in the presence of transaction costs, which, although negatively impact the returns, fail to deplete them entirely. |
publishDate |
2019 |
dc.date.none.fl_str_mv |
2019-05-06 2019-05-06T00:00:00Z 2020-01-03T08:05:20Z |
dc.type.status.fl_str_mv |
info:eu-repo/semantics/publishedVersion |
dc.type.driver.fl_str_mv |
info:eu-repo/semantics/masterThesis |
format |
masterThesis |
status_str |
publishedVersion |
dc.identifier.uri.fl_str_mv |
http://hdl.handle.net/10400.14/29052 TID:202270750 |
url |
http://hdl.handle.net/10400.14/29052 |
identifier_str_mv |
TID:202270750 |
dc.language.iso.fl_str_mv |
eng |
language |
eng |
dc.rights.driver.fl_str_mv |
info:eu-repo/semantics/openAccess |
eu_rights_str_mv |
openAccess |
dc.format.none.fl_str_mv |
application/pdf |
dc.source.none.fl_str_mv |
reponame:Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos) instname:Agência para a Sociedade do Conhecimento (UMIC) - FCT - Sociedade da Informação instacron:RCAAP |
instname_str |
Agência para a Sociedade do Conhecimento (UMIC) - FCT - Sociedade da Informação |
instacron_str |
RCAAP |
institution |
RCAAP |
reponame_str |
Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos) |
collection |
Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos) |
repository.name.fl_str_mv |
Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos) - Agência para a Sociedade do Conhecimento (UMIC) - FCT - Sociedade da Informação |
repository.mail.fl_str_mv |
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1799131941294833664 |