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  • 2025
  • Working Paper

How Do Households Suppress the Price of Tail Risk?

By: Laurent Calvet, Claire Célérier, Gordon Liao and Boris Vallée
  • Format:Print
  • | Language:English
  • | Pages:67
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Abstract

This paper investigates the effects of the issuance of retail products with non-linear payoffs on option prices. For a given underlying asset, when the outstanding volume of products embedding a short-put position increases, implied volatility at the corresponding strike decreases. A similar pattern exists for the divident term structure: larger outstanding volumes of retail structured products are associated with a flattened divident term structured. A simple trading strategy exploiting this pattern leads to a Sharpe ratio above 2. These results are consistent with the existence of segmented markets and speak to the equilibrium effects of the retail demand for innovative securities.

Keywords

Security Design; Dividend; Options; Structured Products; Market Segmentation; Financial Instruments; Design; Volatility; Markets; Segmentation

Citation

Calvet, Laurent, Claire Célérier, Gordon Liao, and Boris Vallée. "How Do Households Suppress the Price of Tail Risk?" Working Paper, 2025.
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About The Author

Boris Vallee

Finance
→More Publications

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  • ADU It Yourself: Unlocking Housing Potential in San Diego By: Boris Vallee, Alex Riolo and James Blume
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  • Expanding the Bicester Collection to New York By: Boris Vallee
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