Correlation Risk Premia for Multi-Asset Equity Options
The lack of a liquid market for implied correlations requires traders to estimate correlation matrices for pricing multi-asset equity options from historical data. To quantify the precision of these correlation estimates, we devise a block bootstrap procedure. The resulting bootstrap distributions are mapped on price distributions of three standard types of multi-asset options. ?Minimal? bid-ask spreads that reflect the risk from estimating the unknown correlations are quoted as quantiles of the price distributions. We discuss the influence of different market regimes and different payoff structures on the price distributions and on the the size of the resulting bid-ask spreads.
|Date of creation:||2003|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: http://www.wiwi.hu-berlin.de/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Margrabe, William, 1978. "The Value of an Option to Exchange One Asset for Another," Journal of Finance, American Finance Association, vol. 33(1), pages 177-86, March.
- Johnson, Herb, 1987. "Options on the Maximum or the Minimum of Several Assets," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 22(03), pages 277-283, September.
- Fengler, Matthias R. & Herwartz, Helmut, 2001. "Multivariate volatility models," SFB 373 Discussion Papers 2001,74, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
When requesting a correction, please mention this item's handle: RePEc:zbw:sfb373:200310. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (ZBW - German National Library of Economics)
If references are entirely missing, you can add them using this form.