IDEAS home Printed from https://ideas.repec.org/a/oup/jfinec/v23y2025i2p1335-1386..html
   My bibliography  Save this article

Domain Stabilization for Model-Free Option Implied Moment Estimation

Author

Listed:
  • Geul Lee
  • Doojin Ryu
  • Li Yang

Abstract

We propose a new method, domain stabilization (DStab), to enhance the return predictive and forecasting ability of model-free option-implied moment estimators. Analyzing S&P 500 options data from January 2015 to December 2021, we show that DStab improves moment estimation consistency by stabilizing the integration domain, leading to better predictive and forecasting performance. When the options data characteristics are appropriately considered, DStab enhances both in-sample predictive and out-of-sample forecasting abilities of implied moments. DStab’s out-of-sample forecasting ability surpasses other treatment methods.

Suggested Citation

  • Geul Lee & Doojin Ryu & Li Yang, 2025. "Domain Stabilization for Model-Free Option Implied Moment Estimation," Journal of Financial Econometrics, Oxford University Press, vol. 23(2), pages 1335-1386.
    • Handle: RePEc:oup:jfinec:v:23:y:2025:i:2:p:1335-1386.
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1093/jjfinec/nbae037
    Download Restriction: Access to full text is restricted to subscribers.
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    More about this item

    Keywords

    deep-out-of-the-money options; domain stabilization; forecasting; option-implied moments; S&P 500 options;
    All these keywords.

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:oup:jfinec:v:23:y:2025:i:2:p:1335-1386.. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Oxford University Press (email available below). General contact details of provider: https://edirc.repec.org/data/sofieea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.