Distinguishing upside potential from downside risk

E. Neave, Michael N. Ross, Jun Yang
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引用次数: 4

Abstract

Purpose – The purpose of this paper is to develop new tools to interpret changes in risk neutral probability distributions (RNPDs). It distinguishes between changes attributable to upside potential and those attributable to downside risk, and shows that the distinction is supported empirically.Design/methodology/approach – This paper estimates pricing kernels and RNPDs from option price data, then studies the expected excess returns on a fixed‐strategy reference portfolio composed of the claims defined by the RNPDs. The portfolio is disaggregated so that realized returns can be expressed as a value‐weighted average of returns to upside (investment) and downside (insurance) sub‐portfolios, respectively. An upside sub‐portfolio can be interpreted as defining payoffs to a call option, a downside sub‐portfolio as payoffs to a short put position.Findings – Empirical results indicate that the realized excess returns on the reference portfolios are significantly and negatively related to both S&P index growth an...
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区分上行潜力和下行风险
目的-本文的目的是开发新的工具来解释风险中性概率分布(rnpd)的变化。它区分了归因于上行潜力的变化和归因于下行风险的变化,并表明这种区分是有经验支持的。设计/方法/方法-本文从期权价格数据估计定价核和rnpd,然后研究由rnpd定义的索赔组成的固定策略参考投资组合的预期超额收益。投资组合被分解,因此实现的回报可以分别表示为上行(投资)和下行(保险)子投资组合的价值加权平均回报。上行子投资组合可以解释为看涨期权的收益,下行子投资组合可以解释为看跌期权空头头寸的收益。实证结果表明,参考投资组合的已实现超额收益与标普指数增长和…呈显著负相关。
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