Title: Option implied discount rates
Authors: Andrei Stancu - Newcastle University Business School (United Kingdom) [presenting]
Chardin Wese Simen - University of Liverpool (United Kingdom)
Davide Avino - University of Liverpool (United Kingdom)
Abstract: A methodology is developed to recover the term structure of discount rates implied by S\&P 500 index option prices. On average, implied discount rates are 36 basis points higher than the corresponding Treasury rates. This spread varies over time and is significantly related to variables that proxy for the business cycle, credit and liquidity risks. We investigate the information content of the term structure of discount rates and find that long-term implied discount rates are mainly informative about future short-term discount rates (rather than the term premium).