Mark-Jan Boes
| Date of Ph.D. defense: | 13 January, 2006 |
| Title of thesis: | Index Options: Pricing, Implied Densities, and Returns |
| ISBN: | 90 5668 157 5 |
| Promotor: | Prof.dr. Bas Werker |
| Copromotor: | Dr. Feike Drost |
Abstract: Full text
In the last couple of decades the use of derivatives has expanded considerably in both risk management and portfolio management. The increased liquidity in derivative contracts is mainly caused by the general developments of financial institutions, investors' needs, and regulations. This thesis studies the issues of pricing, implied densities, and returns for one specific derivative product: the European (index) option.
Chapter 2 gives an overview of the literature that is directly related to the topics studied in this thesis. In Chapter 3 the impact of overnight periods on option prices is examined by estimating an option pricing model that takes overnight closures of exchanges explicitly into account. Chapter 4 proposes a model-free methodology that can be used to extract the risk-neutral distribution of future volatility from empirical option prices. The resulting density of future volatility shows some interesting characteristics. Finally, Chapter 6 investigates characteristics of investment portfolios that contain European options. Specifically, the mean-variance properties of option returns are studied in detail.
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