The Performance of Equity Index Option Strategy Returns During the Financial Crisis

35 Pages Posted: 7 Oct 2015 Last revised: 1 Dec 2015

See all articles by Dominik Schulte

Dominik Schulte

University of Augsburg

Michael Z. Stamos

Allianz Global Investors

Date Written: December 1, 2015

Abstract

Equity index option writing strategies delivered abnormally high returns in the past. This empirical fact is often attributed to the so-called Path Peso argument, which states that put option prices reflect risk premiums for extreme jumps in prices and volatility, which are underrepresented in empirical data. This paper uses option price data collected during the financial crisis as a natural experiment to to examine whether the empirical evidence of abnormally high index option returns persists in periods with adverse outcomes of jump and volatility risk. To this end, this paper uses S&P 500, DAX, and EURO STOXX 50 option price data to analyze returns of a wide array of index option strategies.

Keywords: Option strategies, index options, performance measurement

JEL Classification: G11, G12, G19

Suggested Citation

Schulte, Dominik and Stamos, Michael Z., The Performance of Equity Index Option Strategy Returns During the Financial Crisis (December 1, 2015). Available at SSRN: https://ssrn.com/abstract=2669999 or http://dx.doi.org/10.2139/ssrn.2669999

Dominik Schulte (Contact Author)

University of Augsburg ( email )

Universitätsstr. 2
Augsburg, 86159
Germany

Michael Z. Stamos

Allianz Global Investors ( email )

Mainzer Landstrasse 11-13
Frankfurt, 60329
Germany

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