Learning and Index Option Returns

53 Pages Posted: 9 Aug 2018

See all articles by Alejandro Bernales

Alejandro Bernales

Universidad de Chile

Gonzalo Cortazar

Pontificia Universidad Catolica de Chile

Luka Salamunic

Pontifical Catholic University of Chile

George S. Skiadopoulos

Queen Mary, University of London, School of Economics and Finance; University of Piraeus

Multiple version iconThere are 2 versions of this paper

Date Written: May 1, 2018

Abstract

Little is known about the economic sources that may generate the abnormal returns observed in put index options. We show that the learning process followed by investors may be one such source. We develop an equilibrium model under partial information in which a rational Bayesian learner prices put option contracts. Our model generates put option returns similar to the empirical returns of S&P 500 put index options. This result is not obtained when we analyse alternative setups of the model in which no learning process exists.

Keywords: Put Option Returns, Equilibrium Model, Partial Information, Learning, Structural Breaks

JEL Classification: D83, G13, G14, G17

Suggested Citation

Bernales, Alejandro and Cortazar, Gonzalo and Salamunic, Luka and Skiadopoulos, George, Learning and Index Option Returns (May 1, 2018). Available at SSRN: https://ssrn.com/abstract=3219691 or http://dx.doi.org/10.2139/ssrn.3219691

Alejandro Bernales (Contact Author)

Universidad de Chile ( email )

Diagonal Paraguay 257
Santiago
Chile

HOME PAGE: http://www.alejandrobernales.com

Gonzalo Cortazar

Pontificia Universidad Catolica de Chile ( email )

Departamento Ingenieria Industrial y de Sistemas
Av. Vicuna Mackenna 4860
Santiago
Chile

Luka Salamunic

Pontifical Catholic University of Chile ( email )

Av Libertador General Bernardo O'Higgins 340
Santiago, Región Metropolitana 8331150
Chile

George Skiadopoulos

Queen Mary, University of London, School of Economics and Finance

Lincoln's Inn Fields
Mile End Rd.
London, E1 4NS
United Kingdom

University of Piraeus ( email )

80 Karaoli & Dimitriou Str.
18534 Piraeus, 185 34 -GR
Greece

HOME PAGE: http://web.xrh.unipi.gr/faculty/gskiadopoulos/

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