Publication: Collateral smile
Collateral smile
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Citations
Leippold, M., & Su, L. (2015). Collateral smile. Journal of Banking and Finance, 58, 15–28. https://doi.org/10.1016/j.jbankfin.2015.03.019
Abstract
Abstract
Abstract
We analyze the impact of funding costs and margin requirements on index options traded on the CBOE. Assuming differential borrowing and lending rates, we derive no-arbitrage bounds for European options. We show that funding costs and the CBOE’s margin requirements lead to a price increase, which translates into skew and smile patterns for implied volatility curves even under constant volatilities. Empirical tests confirm that our model-implied slopes have significant statistical power in explaining the slopes observed in the market. H
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- Su, Lujing
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Citations
Leippold, M., & Su, L. (2015). Collateral smile. Journal of Banking and Finance, 58, 15–28. https://doi.org/10.1016/j.jbankfin.2015.03.019
