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Trade Publication
Ahead of the Curve: Time to Embrace Downside Risk
February 15, 2016
Buying equity put options to reduce a portfolio’s downside risk exposure is so attractive that the high cost of doing so all but offsets the benefit, the authors contend.
Working Paper
Generalized Recovery
March 1, 2016
We shed new light, both theoretically and empirically, on the Holy Grail in financial economics: decoding probabilities and risk preferences from asset prices.
Working Paper
Early Option Exercise: Never Say Never
March 18, 2016
A classic rule in financial economics: Never exercise a call option and never convert a convertible bond, except just before expiration or dividend payments. This paper shows how this rule breaks down when financial frictions are introduced.
Working Paper
Being Right is Not Enough: Buying Options to Bet on Higher Realized Volatility
September 27, 2018
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.
White Paper
Covered Calls and Their Unintended Reversal Bet
June 2, 2014
Equity index covered calls have historically realized returns not much less than their underlying index with significantly less volatility.
Working Paper
Causes and Consequences of Margin Levels in Futures Markets
February 28, 2014
Using a Freedom of Information Act request, we obtained a data set on margin requirements for 16 commodity futures contracts, and used it to explore how margins are set and to test the existing theories on the implications of changing margin levels.
White Paper
Understanding the Volatility Risk Premium
May 11, 2018
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
March 31, 2017
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.
Journal Article
Demand-Based Option Pricing
February 25, 2009
Index and equity options are notoriously difficult to price.
Interview
Words From the Wise: An AQR Interview with Ed Thorp
January 10, 2018
We sat down with Ed Thorp, a pioneer in the mathematical analysis of casino games and investing, to get his insights on an array of topics from casino gambling to quantitative investing.