A Tractable Framework for Option Pricing with Dynamic Market Maker Inventory and Wealth
构建了一个资本有限的指数期权做市商动态模型，求解了方差风险溢价和期权价格，并用数据验证了模型在金融危机期间表现良好。
We develop a tractable dynamic model of an index option market maker with limited capital. We solve for the variance risk premium and option prices as a function of the asset dynamics and market maker option holdings and wealth. The market maker absorbs end users’ positive demand and requires a more negative variance risk premium when she incurs losses. We estimate the model using returns, options, and inventory and find that it performs well, especially during the financial crisis. The restrictions imposed by nested existing reduced-form stochastic-volatility models are strongly rejected in favor of the model with a market maker.