We introduce a new tensor derived computation of higher dimensional average implied correlations determined from high frequency options panels. Using supersymmetric identities to decrease we can determine average moments and co-moments for equities and incorporate these forward looking measures to a standard asset pricing framework. To compute the metrics we use both a broad market index (S&P 500) and nine sector indices versus the underlying components. Our empirical analysis shows that the cross section stock returns have substantial exposure to risk captured by the market average correlation factor. The results are robust to various permutations of the estimation procedure. The risk premium of the market average correlation factor is statistically and economically significant when controlling the other common market risk factors or firm characteristics. Finally, we test the higher-order CAPM with the ex ante market beta, gamma, and theta approximated by the option-implied average correlations. In line with the evidence documented in previous literature, we find positive significant risk premiums for the ex ante market beta and theta but mixed results for the ex ante market gamma.

Option-implied moments, like implied volatility, contain useful information about an underlying asset's return distribution but are derived under the risk-neutral probability measure. This paper provides a direct way of converting risk-neutral moments into the corresponding physical moments, which are required for many applications. The main result is a representation of physical moments in terms of observed option prices and a representative investor's preferences. As an empirical application of this result, we provide implied estimates of the representative stock market investor's disappointment aversion using S&P 500 index option prices. We find that disappointment aversion has a procyclical pattern. It is high in times of high index levels and declines when the index falls. We confirm the view that investors with high risk aversion and disappointment aversion leave the stock market during times of turbulence and reenter it after a period of high returns.

The risk-neutral distribution of returns, implied by S & P 500 option prices, has been a popular topic of research for many years. Because of its forward-looking nature, it gives valuable insights into the expectation and risk attitude of investors. The moments of this distribution condense important characteristics of these expectations into just a few key figures. This thesis provides an approach to not only compute the first four moments (or more specifically the mean, standard deviation, skewness and kurtosis) under realistic data situations, but to observe how the moments (and therefore investor's expectations) evolve over time. It covers three parts. An analysis of the data, an analysis of a correction method if insufficient data is available, and finally the application of computing moment time series from high-frequency option data.

This volume is a collection of classical and recent empirical studies of currency options and their implications for issues of exchange rate economics, such as exchange rate risk premium, volatility, market expectations, and credibility of exchange rate regimes. It contains applications on how to extract useful information from option market data for financial forecasting policy purposes. The subjects are discussed in a self-contained, user-friendly format, with introductory chapters on currency option theory and currency option markets.The book can be used as supplementary reading for graduate finance and international economics courses, as training material for central bank and regulatory authorities, or as a reference book for financial analysts.

Quantitative portfolio management has become a highly specialized discipline. Computing power and software improvements have advanced the field to a level that would not have been thinkable when Harry Markowitz began the modern era of quantitative portfolio management in 1952. In addition to raw computing power, major advances in financial economics and econometrics have shaped academia and the financial industry over the last 60 years. While the idea of a general theory of finance is still only a distant hope, asset managers now have tools in the financial engineering kit that address specific problems in their industry. The Oxford Handbook of Quantitative Asset Management consists of seven sections that explore major themes in current theoretical and practical use. These themes span all aspects of a modern quantitative investment organization. Contributions from academics and practitioners working in leading investment management organizations bring together the key theoretical and practical aspects of the field to provide a comprehensive overview of the major developments in the area.

A one-stop shop for background and current thinking on the development and uses of rates of return on capital Completely revised for this highly anticipated fifth edition, Cost of Capital contains expanded materials on estimating the basic building blocks of the cost of equity capital, the risk-free rate, and equity risk premium. There is also discussion of the volatility created by the financial crisis in 2008, the subsequent recession and uncertain recovery, and how those events have fundamentally changed how we need to interpret the inputs to the models we use to develop these estimates. The book includes new case studies providing comprehensive discussion of cost of capital estimates for valuing a business and damages calculations for small and medium-sized businesses, cross-referenced to the chapters covering the theory and data. Addresses equity risk premium and the risk-free rate, including the impact of Federal Reserve actions Explores how to use Morningstar's Ibbotson and Duff Phelps Risk Premium Report data Discusses the global cost of capital estimation, including a new size study of European countries Cost of Capital, Fifth Edition puts an emphasis on practical application. To that end, this updated edition provides readers with exclusive access to a companion website filled with supplementary materials, allowing you to continue to learn in a hands-on fashion long after closing the book.