Events

Peter Carr Brooklyn Quant Experience (BQE) Seminar Series: Kris Jacobs

Lecture / Panel
 
For NYU Community

Peter Carr BQE Seminar Series

NYU Students are highly encouraged to attend in person.
All other non-NYU guests are invited to attend virtually.

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Meeting ID: 950 8754 2920
Password: PCBQE216KJ

Title

Modeling Conditional Factor Risk Premia Implied by Index Option Returns

Abstract

We propose a novel factor model for option returns. Option exposures are estimated nonparametrically and factor risk premia can vary nonlinearly with states. The model is estimated using regressions, with minimal assumptions on factor and option return dynamics. We estimate the model using index options to characterize the conditional risk premia for factors of interest such as the market return, market variance, tail, and intermediary risk factors, higher moments, and the VIX term structure slope. Combined, market return and variance explain more than 90% of option return variation.

Unconditionally, the magnitude of the variance risk premium is plausible. It displays pronounced time-variation, spikes during crises, and always has the expected sign.

Bio

Kris Jacobs holds the Bauer Chair in Finance at the Bauer College of Business, University of Houston. He received his Ph.D. from the University of Pittsburgh and his undergraduate and Masters degrees from the University of Leuven in Belgium. His research interests include asset valuation, derivatives and fixed income markets, credit risk, risk management, financial econometrics, and commodity markets, and his research is very widely published and cited in all leading journals in finance. At the Bauer College of Business, he directs the Ph.D. Program in Finance. Prior to joining the University of Houston, he was a Faculty member at McGill University.