Giacomo Bormetti (University of Bologna) on "A Jump-and-Smile Ride: Continuous and Jump Variance Risk Premia in Option Pricing"

Speaker:  Giacomo Bormetti - University of Bologna
  Wednesday, March 2, 2016 at 12:00 PM Polo Santa Marta, Via Cantarane 24, Stanza 1.59
During the talk I discuss a very general and fully analytical option pricing framework, encompassing a wide class of discrete time models featuring multiple component structure in both volatility and leverage, and a flexible pricing kernel with multiple risk premia. The proposed framework is general enough to include either GARCH-type volatility, Realized Volatility or a combination of the two. It also provides new way of separately estimate risk premia by coherently combining high-frequency returns and option data in multi-factor pricing models. I present an overview of various results attained within the novel framework. Specifically, I consider improvements in pricing out-of-the-money options, ability to generate a realistic hump-shaped term structure of variance swap rates, and evidence of strong predictability on future stock index returns.
Joint work with Dario Alitab, Fulvio Corsi, and Adam Majewski.

Programme Director
Roberto Renò

Publication date
February 1, 2016