IFin Seminar, Nicola Fusari, Johns Hopkins Carey Business School "Structural Stochastic Volatility "
Institute of Finance
Date: 24.02.2022 / 12:25 - 13:40
Speaker: Nicola Fusari, Johns Hopkins Carey Business School
Title: "Structural Stochastic Volatility"
Date: February 24, 2022
Time: 12:25 - 13:40
Room: Virtual over Zoom
A novel closed-form pricing formula for short-maturity options is employed to jointly identify equity characteristics (spot volatility, spot leverage and spot volatility of volatility) which have been the focus of large, but separate, strands of the literature. Interpreting equity as a call option on asset values, all equity characteristics should depend on structural sources of risk, such as the variance of the firm's assets and the extent of the firm's financial leverage. We confirm the implications of theory with data, thereby providing support for relations (like the link between spot leverage and the firm's financial leverage) broadly considered empirically ambiguous.