COVID-19 and market expectations: Evidence from option-implied densities
نویسندگان
چکیده
منابع مشابه
Option-Implied Correlations, Factor Models, and Market Risk∗
Implied correlation and variance risk premium stand out in predicting market returns. However, while the predictive ability of implied correlation lasts for up to a year, the variance risk premium predicts market returns only for one quarter ahead. Contrary to the accepted view, implied correlation predicts the market return not through a diversification risk (average correlation) channel, but ...
متن کاملImplied risk neutral densities from option prices: hypergeometric, spline, lognormal and edgeworth functions
This work examines the stability and accuracy of four di¤erent methods to estimate Risk-Neutral Density functions (RNDs) using European options. These methods are the Double-Lognormal Function (DLN), the Smoothed Implied Volatility Smile (SML), the Density Functional Based on Conuent Hypergeometric function (DFCH) and the Edgeworth expansions (EE). These methodologies were used to obtain the R...
متن کاملMarket Timing with Option-Implied Distributions: A Forward-Looking Approach
We address the empirical implementation of the static asset allocation problem by developing a forward-looking approach that uses information from market option prices. To this end, constant maturity S&P 500 implied distributions are extracted and subsequently transformed to the corresponding risk-adjusted ones. Then, we form optimal portfolios consisting of a risky and a risk-free asset and ev...
متن کاملOption-Implied Term Structures
The illiquidity of long-maturity options has made it difficult to study the term structures of option spanning portfolios. This paper proposes a new estimation and inference framework for these option-implied term structures that addresses long-maturity illiquidity. By building a sieve estimator around the risk-neutral valuation equation, the framework theoretically justifies (fattailed) extrap...
متن کاملOption Prices under Bayesian Learning: Implied Volatility Dynamics and Predictive Densities∗
This paper shows that many of the empirical biases of the Black and Scholes option pricing model can be explained by Bayesian learning effects. In the context of an equilibrium model where dividend news evolve on a binomial lattice with unknown but recursively updated probabilities we derive closed-form pricing formulas for European options. Learning is found to generate asymmetric skews in the...
متن کاملذخیره در منابع من
با ذخیره ی این منبع در منابع من، دسترسی به آن را برای استفاده های بعدی آسان تر کنید
ژورنال
عنوان ژورنال: Economics Letters
سال: 2020
ISSN: 0165-1765
DOI: 10.1016/j.econlet.2020.109441