Using a complete sample of US equity options, we analyze pat-
terns of implied volatility in the cross-section of equity options with
respect to stock characteristics. We find that high-beta stocks, small
stocks, stocks with a low-market-to-book ratio, and non-momentum
stocks trade at higher implied volatilities after controlling for histor-
ical volatility. We find evidence that implied volatility overestimates
realized volatility for low-beta stocks, small caps, low-market-to-book
stocks, and stocks with no momentum and vice versa. However, we
cannot reject the null hypothesis that implied volatility is an unbiased
predictor of realized volatility in the cross section.
Die Arbeit untersucht den Ankündigungseffekt und die Outperformance von Schweizer Unternehmen, die zwischen 1992 und 2003 eine Nennwertrückzahlung ausgeschüttet haben und stellt die erste empirische Untersuchung von Nennwertrückzahlungen dar. Es konnte gezeigt werden, dass die Aktienkursreaktion in der Zeitperiode [-1,0] auf die Ankündigung von Nennwertrückzahlungen +1.0% beträgt. Eine weitere Analyse weist darauf hin, dass Nennwertrückzahlungen anstelle Dividendenzahlungen höhere Preisreaktionen bei Ankündigung verursachen. Zudem wurde festgestellt, dass eine Ausschüttungserhöhung mittels einer Nennwertrückzahlung zu einer stärkeren Kursreaktion führt als eine Dividendenerhöhung. Dies unterstützt die Hypothese, dass bei einer Nennwertrückzahlung im Vergleich zu einer Dividendenzahlung die steuerliche Behandlung und die stärkere Signalwirkung ausschlaggebender sind.
In this numerical analysis of models for valuing employee stock options, the focus is on the impact of a model on the resulting option prices and the sensitivity of pricing differences between models with respect to changes in the parameters. For most models, the price reduction relative to standard options is uniquely determined by the expected life of the option. In fact, with the exception of the Financial Accounting Standards Board 123 model, pricing differences are negligible if the models are calibrated to the same expected life of the option. Consequently, the application of models with several hard-to estimate parameters, such as the utility-maximizing model, can he greatly simplified by calibration, because expected life is easier to estimate than utility parameters.
This article examines the pricing and hedging of mandatory convertible bonds on the US market using daily market prices for a period of 498 trading days resulting in a sample of over 14,600 daily price observations. We explore the pricing and hedging performance based on a simple contingent claims model. On average, the pricing errors are lower than those found for standard convertible bonds. An analysis of the hedging performance of the model indicates that the model is useful for hedging as, on average, the hedging errors observed are relatively small and mostly unsystematic.
We show how employee stock options can be valued under the new reporting standards IFRS 2 and FASB 123 (revised) for share-based payments. Both standards require companies to expense employee stock options at fair value. We propose a new valuation model, referred to as Enhanced American model, that complies with the new standards and produces fair values often lower than those generated by traditional models such as the Black-Scholes model or the adjusted Black-Scholes model. We also provide a sensitivity analysis of model input parameters and analyze the impact of the parameters on the fair value of the option. The valuation of employee stock options requires an accurate estimation of the exercise behavior. We show how the exercise behavior can be modeled in a binomial tree and demonstrate the relevance of the input parameters in the calibration of the model to an estimated expected life of the option.
This paper investigates the alpha generation of the hedge fund industry based on a recent sample compiled from the Lipper/TASS database covering the time period from January 1994 to September 2008. We find a positive average hedge fund alpha in the cross-section for the majority of strategies and a positive and significant alpha for roughly half of all funds. Moreover, the alpha of three-quarter of the strategy indices is positive and significant in the time series. A comparison of a factor model in which the risk factors are selected based on a stepwise regression approach and the widely used factor model proposed by Fung and Hsieh (2004) reveals that the estimated alpha is robust with respect to the choice of the factor model. In contrast to prior research, we find no evidence of a decreasing hedge fund alpha over time. Moreover, based on our sample, we cannot confirm prior evidence pointing to capacity constraints in the hedge fund industry.
