Option-Implied Intra-Horizon Value-at-Risk

Option-Implied Currency Risk Premia

We use cross-sectional information on the prices of G10 currency options to calibrate a non-Gaussian model of pricing kernel dynamics and construct estimates of conditional currency risk premia. We find that the mean historical returns to short dollar and carry factors (HMLFX ) are statistically indistinguishable from their option-implied counterparts, which are free from peso problems. Skewnes...

Option-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...

Determining and benchmarking risk neutral distributions implied from option prices

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 ...

Measuring Systematic Risk Using Implied Beta in Option Prices

This paper provides a novel method to estimate β thoroughly based on option prices. Through combining the market model and the multivariate risk-neutral valuation relationship in Stapleton and Subrahmanyam (1984) and Câmara (2003), we develop a pricing model for individual stock options involving the volatility of the market index level and the levels of the β and the idiosyncratic risk of the ...