@techreport{b7031cf6efd54966a0c8b051031dff7f,
title = "The Factor Structure in Equity Options",
abstract = "Equity options display a strong factor structure. The first principal components of the equity volatility levels, skews, and term structures explain a substantial fraction of the cross-sectional variation. Furthermore, these principal components are highly correlated with the S&P500 index option volatility, skew, and term structure respectively. We develop an equity option valuation model that captures this factor structure. The model predicts that firms with higher market betas have higher implied volatilities, steeper moneyness slopes, and a term structure that co-varies more with the market. The model provides a good fit and the equity option data support the model{\textquoteright}s cross-sectional implications.",
keywords = "Factor models, Equity options, Implied volatility, Option-implied beta, Factor models, Equity options, Implied volatility, Option-implied beta",
author = "Peter Christoffersen and Mathieu Fournier and Kris Jacobs",
year = "2016",
doi = "10.2139/ssrn.2224270",
language = "English",
series = "Rotman School of Management Working Paper",
publisher = "Rotman School of Management, University of Toronto",
number = "2224270",
address = "Canada",
type = "WorkingPaper",
institution = "Rotman School of Management, University of Toronto",
}