Analysis of option returns in perfect and imperfect markets

by David Salazar Volkmann
Doctoral thesis
Date of Examination:2020-05-15
Date of issue:2020-05-20
Advisor:Prof. Dr. Olaf Korn
Referee:Prof. Dr. Olaf Korn
Referee:Prof. Dr. Marliese Uhrig-Homburg
Referee:Prof. Dr. Helmut Herwartz
Persistent Address: http://dx.doi.org/10.53846/goediss-7984

 

 

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Abstract

English

The thesis studies index and equity option returns in perfect and imperfect markets to explain parts of the option mispricing puzzle. Perfect markets exist under informational efficiency, market completeness and frictionless trading. The thesis shows that an option-implied risk-adjusted approach and the standard Black-Scholes model are consistent with empirical mean and volatility of S&P500 put returns and ITM call returns, but not OTM call returns. Imperfect markets exist under market frictions which allow arbitrage-free deviations of option prices from fair value resulting in option return premiums. The thesis explains delta-hedged stock option return premiums through the conditional low volatility effect.
Keywords: Option Mispricing Puzzle, Option Return, Option Volatility, Low Volatility Effect
 
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