The Price of Correlation Risk: Evidence from Equity Options

By Joost Driessen, Pascal J. Maenhout, Grigory Vilkov. 2009

386 citations recorded by the source corpus.

Subfields: Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/ccc136cea566eeaa127565eb9850760a9a3c29e0

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Citations in the corpus

Correlation Risk and Optimal Portfolio Choice (2010, methodology): “We estimate the Heston (1993) square-root processes for the volatility and an autonomous specification for the correlation process, as in Driessen et al. (2007). When we compute the model-implied pull functions, we find that (i) they are often outside the 95% confidence band around the empirical pul”
Does Idiosyncratic Volatility Proxy for Risk Exposure (2012, methodology): “Therefore, the previous finding that correlation risk is not priced in the cross section of IV portfolios is in line with Driessen et al. (2009), who show that individual options are not exposed to correlation risk.”
Improving Portfolio Selection Using Option-Implied Volatility and Skewness (2013, methodology): “moments of the return distribution, such as skewness. Driessen, Maenhout, and Vilkov (2009)”
Cross-Section of Option Returns and Idiosyncratic Stock Volatility (2013, positive): “The significant relation between scaled delta-hedged option return and stock’s systematic risk exposure complements the key finding of Duan and Wei (2009) that after controlling for the underlying asset’s total risk, systematic risk proportion can help differentiate the price structure across indivi”
Realized Wishart-Garch: A Score-Driven Multi-Asset Volatility Model (2016, neutral): “For example, Driessen, Maenhout, and Vilkov (2009) investigate individual volatility risk premia differences (typically in relation to a portfolio or index) and they explain them by a high correlation risk premium.”
Illiquidity Premia in the Equity Options Market (2018, methodology): “We follow Driessen, Maenhout, and Vilkov (2009) and Bollen and Whaley (2004) and define moneyness according to the option delta from OptionMetrics,4 which we denote by ∆.”
Bond Variance Risk Premia (2012, neutral): “For literature on the stock market variance risk premium, see, e.g., Driessen, Maenhout, and Vilkov (2009), Bollerslev, Gibson, and Zhou (2011), Carr and Wu (2009), Cremers, Halling, and Weinbaum (2010) and Todorov (2010), among others.”
Measuring Equity Risk with Option-Implied Correlations (2012, background): “The second observation is supported by the negative correlation of S&P 500 stocks is −10.96%”; and Driessen, Maenhout, and Vilkov (2009) derive a correlation factor and show that it bears a negative risk premium, again implying that the risk-neutral correlations are on average higher than the true…”
Modeling the Dynamics of Correlations Among Implied Volatilities (2015, background): “9 Driessen et al. (2009) find that only market-wide volatility risk is priced, while it is not priced at the individual stock level.”
Forecasting with Option-Implied Information (2012, neutral): “Skintzi and Refenes (2005) and Driessen, Maenhout, and Vilkov (2009) propose the following measure of average option-implied correlation between the stocks in an index, I, ρICI = V ARI − ∑n j=1w 2 jV ARj 2 ∑n−1 j=1 ∑n i>j wiwjV AR 1/2 i V AR 1/2 j (12) where wj denotes the weight of stock j in the…”