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Commodity Tail Risk

, Mörke, Mathis Rudolf Werner

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Credit Variance Risk Premiums

2019-06-04 , Ammann, Manuel , Mörke, Mathis

This paper studies variance risk premiums in the credit market. Using a novel data set of swaptions quotes on the CDX North America Investment Grade index, we find that returns of credit variance swaps are negative and economically large. Shorting variance swaps yields an annualized Sharpe ratio of almost six, eclipsing its counterpart in fixed income or equity markets. The returns remain highly statistically significant when accounting for transaction costs, cannot be explained by established risk-factors, and hold for various investment horizons. We also dissect the overall variance risk premium into payer and receiver variance risk premiums. We find that exposure to both parts is priced. However, the returns for payer variance, associated with bad economic states, are roughly twice as high in absolute terms.

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Option Factor Momentum

2023-04-13 , Niclas Robin Käfer , Mathis Rudolf Werner Mörke , Tobias Wiest

We document profitable cross-sectional and time-series momentum in 56 option factors constructed from monthly sorts on daily delta-hedged option positions. Option factor returns are highly autocorrelated, but momentum profits of strategies with longer formation periods are mainly driven by high mean returns that persistently differ across factors. Momentum effects are the strongest in the factors' largest principal components, consistent with findings for stock factor momentum. Finally, we find a new form of momentum in options markets: momentum in single delta-hedged option returns. Option factor momentum fully subsumes option momentum, whereas option momentum cannot explain option factor momentum. Our findings provide insights into the channels that drive option momentum and have implications for designing profitable option trading strategies.

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The Role of Leveraged ETFs and Option Market Imbalances on End-of-Day Price Dynamics

2021-09-17 , Barbon, Andrea , Buraschi, Andrea , Beckmeyer, Heiner , Mörke, Mathis Rudolf Werner