GALLERY: OptionMetrics 2019 ORC Conference

January 17, 2020

The Eighth Annual OptionMetrics Research Conference (ORC19) brought together international academia and financial professionals from around the globe on

October 28, 2019 at Fordham University in New York City, to share ideas and increase understanding of the options markets.

Dean Curnutt, Founder and CEO of Macro Risk Advisors, offered perspective on the current market in his keynote called “Steroids, Credit Growth and the Derivatives Blow Up Hall of Fame.” In his talk, Curnutt detailed retrospective blow-ups in the derivatives market—from energy future losses in 1993, to credit default swaps in 2012—what happened, and why.

Highlights from other presentations included:

The Economic Value of Volatility Forecasting with Machine Learning, Paul Borochin, University of Miami, examined how classification and regression tree (CART) models can deliver superior next-month portfolio abnormal returns.
Trading Ahead of the Disclosure: Cybersecurity Breaches and Insider Trading, Svetlana Gavrilova, University of Florida, addressed her research empirically examining trading behavior on the options market in anticipation of data breach announcements. Key questions explored included: do investors trade on limited information before the official breach announcement? And what strategies do they pursue?
Short Interest, Institutional Ownership, and the Equity Option Returns, Yanhui Zhao, University of Wisconsin – Whitewater, discussed her research on whether options on the most constrained stocks have the most negative delta-hedged returns.
Implied Volatility Changes and Corporate Bond Returns, Xiao Xiao, Erasmus University Rotterdam, examined if there is relevant information in the options market for the future of corporate bond returns.
The Impact of Equity Tail Risk on Bond Risk Premia: Evidence of Flight-to-Safety in the U.S. Term Structure, Dario Ruzzi, Bank of Italy / University of Bristol, described his studies on flight to safety (FTS) in the context of bond pricing and how extreme events in the equity market can affect the dynamics of the U.S. Treasury yield curve.
Forward-Looking Expected Tail Loss: An Application of the Recovery Theorem, Anthony Sanford, University of Maryland – College Park, examined portfolio development using forward looking data from the recovery theorem and expected tail loss.
Option-Implied Expected Returns and the Construction of Mean-Variance Portfolios, Kazuhiro Hiraki, Queen Mary University of London, proposed a formula to estimate the option-implied expected stock returns in the presence of market frictions.
The Effect of Option-implied Skewness on Delta- and Vega-Hedged Option Returns, Zekun Zac Wu, University of Connecticut, examined if option implied skewness predict option returns.
Contingent Claims and Hedging of Credit Risk with Equity Options, Davide Avino, University of Liverpool, introduced a new methodology, developed with his colleagues, to hedge changes in the market values of credit exposures using equity put options and contingent claims valuation.