New related paper to #237 – Dispersion Trading
Authors: Deng
Title: Volatility Dispersion Trading
Link: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1156620
Abstract:
This papers studies an options trading strategy known as dispersion strategy to investigate the apparent risk premium for bearing correlation risk in the options market. Previous studies have attributed the profits to dispersion trading to the correlation risk premium embedded in index options. The natural alternative hypothesis argues that the profitability results from option market inefficiency. Institutional changes in the options market in late 1999 and 2000 provide a natural experiment to distinguish between these hypotheses. This provides evidence supporting the market inefficiency hypothesis and against the risk-based hypothesis since a fundamental market risk premium should not change as the market structure changes.
Notable quotations from the academic research paper:
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