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DESCRIPTION:Laurent Calvet\n\nSKEMA Business School\n\nHow Do Households Su
 ppress The Price Of Tail Risk?\n\nDate: Friday\, April 25\, 2025\n	Time: 10
 :30 AM - 11:45 AM\n	Location: Bronfman building\, Room 340\n\nAll are cordi
 ally invited to attend.\n\n\nAbstract\n\nWe examine how households dampen 
 volatility prices through their demand for Short Put Products (SPPs) - a g
 lobally popular structured product that offers high headline rates in exch
 ange for selling a put option. Using a comprehensive dataset covering all 
 index-linked SPP issuances worldwide since market inception\, we empirical
 ly show that SPP issuance volumes rise when the volatility of the underlyi
 ng asset is high\, as higher volatility allows to offer higher headline ra
 tes. In turn\, increased SPP issuance drives down the prices of deeply out
 -of-the-money put options\, suppressing the corresponding volatility risk 
 premium. To uncover the underlying mechanism and quantify the equilibrium 
 effects of these innovative products on volatility prices\, we develop a s
 tructural model in which households underweight left-tail risk\, driving d
 emand for SPPs. Risk-averse financial intermediaries optimize the headline
  rate offered on these products while imperfectly hedging their exposure. 
 As volatility rises\, stronger demand for SPPs -- driven by higher headlin
 e rates -- exerts downward pressure on option prices\, particularly at str
 ikes below 100\%. Our findings reveal a novel channel for enhancing financ
 ial stability: household demand for innovative security designs lowers the
  cost of insuring against left-tail risk for other market participants.\n
DTSTART:20250422T173000Z
DTEND:20250422T173000Z
LOCATION:Room 340\, Bronfman Building\, CA\, QC\, Montreal\, H3A 1G5\, 1001
  rue Sherbrooke Ouest
SUMMARY:Finance Area Seminar: Laurent Calvet
URL:https://www.mcgill.ca/desautels/channels/event/finance-area-seminar-lau
 rent-calvet-365043
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