Disasters Implied by Equity Index Options

By David K. Backus, Mikhail Chernov, Ian Martin. 2011

176 citations recorded by the source corpus.

Subfields: Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/e74212b12755fa0f93910f0f5d047a7a7acfa676

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Citations in the corpus

Disasters Risk and Business Cycles (2012, unknown): “There is a roughly one-in- ve chance that U.S. GDP and consumption will fall by 10% or more, something not seen since the early 1930s.”
Variance Bounds on the Permanent and Transitory Components of Stochastic Discount Factors (2012, unknown): “Uncertainty about consumption growth is modeled following Backus, Chernov, and Martin (2011) as logðgtþ1Þ ¼wtþ1þztþ1, with wtþ1 i:i:d: N ðm,s2Þ, ztþ19Jtþ1 i:i:d: N ðyJtþ1,d 2Jtþ1Þ, and ð32Þ Jtþ1 is i:i:d: Poisson random variable with density oj j! e o for j 2 f0;1,2, . . .g, and mean o: ð33Þ The…”
News Implied Volatility and Disaster Concerns (2017, background): “Backus, Chernov, and Martin (2011) present an important challenge to the idea that the “overpricing” of out-of-the-money put options can be explained by static rare disaster risk models.”
Too-Systemic-To-Fail: What Option Markets Imply About Sector-Wide Government Guarantees (2016, unknown): “The derivation is based on Backus et al. (2011) who consider a setting with CRRA preferences over consumption, in which case risk premia are increasing not only in α but also in the covariance between consumption growth and returns.”
Mortgage Design in an Equilibrium Model of the Housing Market (2018, unknown): “Backus, Chernov, and Martin (2011) show that to match the prices of out-of-the-money S&P500 options, one needs a model with jumps, where the ratio of the riskneutral jump intensity to the true jump intensity is 6.1:1 (see Table II of their paper).”
Credit Risk and Disaster Risk (2013, unknown): “1 (x) = 1; (iii) 0(x) = xh(x): We can now set up the rm s problem at time t : it must decide how much to invest, how much debt to issue (and hence how much of the investment is nanced through equity), so as to maximize the expected discounted equity value: max Bt+1;Kwt+1;St Et (Mt+1max (Vt+1 Bt+1; 0”
Rare Macroeconomic Disasters (2012, background): “Backus, Chernov, and Martin (2011), henceforth BCM, also use options prices for contracts on the S&P 500, in this case from 1987 to 2003.”
Tail Risk and Asset Prices (2014, unknown): “…Kapadia, and Madan (2003), who study risk-neutral skewness and kurtosis, Bollerslev, Tauchen, and Zhou (2009), who examine how the variance risk premium relates to the equity premium, and Backus, Chernov, and Martin (2011) and Gao and Song (2013), who infer disaster risk premia from options.”
Asset Pricing with Countercyclical Household Consumption Risk (2017, unknown): “Moreover, Backus, Chernov, and Martin (2011) demonstrated that options imply smaller probabilities of extreme outcomes than the probabilities estimated from international macroeconomic data.”
Learning about Consumption Dynamics (2014, unknown): “Ut = { (1− β)C t + β ( Et [ U t+1 ]) 1−1/ψ 1−γ } 1 1−1/ψ , (3)”