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Journal Article

Embracing Downside Risk

This paper shows that downside risk tends to be the main source of long-run returns in equities and other asset classes, and argues that long-term investors may be better off embracing downside risk in certain cases.

Journal Article

Still Not Cheap: Portfolio Protection in Calm Markets

This paper investigates the relationship between option richness and volatility across 10 global equity indices.

Journal Article

International Diversification Works (Eventually)

Critics of international diversification observe that it does not protect investors against short-term market crashes because markets become more correlated during downturns.

Working Paper

Being Right is Not Enough: Buying Options to Bet on Higher Realized Volatility

Should investors who buy options expect to profit when realized volatility increases? If so, under what conditions? To answer these questions, we analyzed the relationship between long volatility performance (buying options) and contemporaneous changes in volatility.

Working Paper

Forecasting the Distribution of Option Returns

We propose a method for constructing conditional option return distributions.

Journal Article

Covering the World: Global Evidence on Covered Calls

Covered call strategies may be decomposed, using a risk and performance attribution methodology, into three components: equity exposure, short volatility exposure, and equity timing. This paper applies that attribution methodology to covered calls on 11 global indexes.

Working Paper

Future Liquidity, Present Value: Measuring and Pricing Liquidity Risk

In 1991, John Y. Campbell showed how an asset’s return is related to new information about its future cash flows and discount rates. We extend Campbell’s return decomposition to show how it is also related to new information on future liquidity.

Working Paper

Which Index Options Should You Sell?

We study return and risk properties of equity-hedged options across the S&P 500 option surface. We evaluate returns by estimating alpha to the S&P 500 and quantify risk using return volatility, losses under stress tests, and conditional value at risk.

White Paper

Understanding the Volatility Risk Premium

The volatility risk premium (VRP) represents the compensation that investors earn for providing protection against market losses. We explain the reasons why it may exist and explore its historical performance with a simple option-selling strategy.

White Paper

PutWrite versus BuyWrite: Yes, Put-Call Parity Holds Here Too

Surprisingly, the CBOE S&P 500 PutWrite Index has outperformed the CBOE S&P 500 BuyWrite Index by around 1.1 percent annually between 1986 and 2015. We explain the mystery behind this outperformance and its implications for portfolio construction.