Option-Implied Zero-Coupon Yields: Unifying Bond and Equity Markets

Battle Count: 76

The paper is primarily theoretical/conceptual, proposing a unified risk-neutral measure framework rather than a directly implementable trading strategy. However, it has moderate relevance for quantitative trading in: (1) cross-asset arbitrage between equity options and fixed income, (2) unified yield curve construction for multi-asset portfolio optimization, (3) consistent discounting across asset classes in derivative pricing, and (4) understanding the information content of equity options for bond market pricing. The empirical findings (ATM yields best match treasury yields) could inform fixed income relative value strategies. The paper is more foundational than directly actionable for most quant trading desks.

The core methodology (PCP-based yield extraction) is straightforward: compute discount factor from put-call parity, derive implied yield, compare to treasury curves. Requires: (1) access to S&P 500 option chain data with put/call prices, (2) treasury par yield curve data, (3) PCHIP interpolation for yield curve alignment, (4) median/ATM aggregation logic. The theoretical framework (Propositions 3.1 vs 3.2) requires understanding of stochastic calculus and martingale theory. No complex ML models or optimization algorithms are needed. The main challenge is data quality (stale prices, PCP violations) and the limited empirical scope.

Data sources are publicly available (Yahoo Finance for S&P 500 option chains, US Treasury for par yield curves). The methodology is clearly described with explicit equations (PCP-based discount factor, implied yield formula, PCHIP interpolation). However, the analysis covers only 5 trading days (9-15 October 2024), and no code or processed data is provided. The theoretical framework is well-specified but the empirical validation is limited in scope.