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Do option markets correctly price the probabilities of movement of the underlying asset?

Citations

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Cited by:

  1. Gabaix, Xavier & Verdelhan, Adrien & Rancière, Romain & Farhi, Emmanuel & Fraiberger, Samuel P., 2009. "Crash Risk in Currency Markets," CEPR Discussion Papers 7322, C.E.P.R. Discussion Papers.
  2. Yacine Aït-Sahalia & Michael W. Brandt, 2008. "Consumption and Portfolio Choice with Option-Implied State Prices," NBER Working Papers 13854, National Bureau of Economic Research, Inc.
  3. Bollerslev, Tim & Gibson, Michael & Zhou, Hao, 2011. "Dynamic estimation of volatility risk premia and investor risk aversion from option-implied and realized volatilities," Journal of Econometrics, Elsevier, vol. 160(1), pages 235-245, January.
  4. Golubev, Yuri & Härdle, Wolfgang Karl & Timofeev, Roman, 2008. "Testing monotonicity of pricing Kernels," SFB 649 Discussion Papers 2008-001, Humboldt University Berlin, Collaborative Research Center 649: Economic Risk.
  5. Borochin, Paul & Chang, Hao & Wu, Yangru, 2020. "The information content of the term structure of risk-neutral skewness," Journal of Empirical Finance, Elsevier, vol. 58(C), pages 247-274.
  6. Tim Bollerslev & Viktor Todorov, 2011. "Tails, Fears, and Risk Premia," Journal of Finance, American Finance Association, vol. 66(6), pages 2165-2211, December.
  7. Andreou, Panayiotis C. & Charalambous, Chris & Martzoukos, Spiros H., 2010. "Generalized parameter functions for option pricing," Journal of Banking & Finance, Elsevier, vol. 34(3), pages 633-646, March.
  8. repec:dau:papers:123456789/871 is not listed on IDEAS
  9. David Backus & Mikhail Chernov & Ian Martin, 2011. "Disasters Implied by Equity Index Options," Journal of Finance, American Finance Association, vol. 66(6), pages 1969-2012, December.
  10. Cremers, Martijn & Driessen, Joost & Maenhout, Pascal & Weinbaum, David, 2008. "Individual stock-option prices and credit spreads," Journal of Banking & Finance, Elsevier, vol. 32(12), pages 2706-2715, December.
  11. Benatia, David & Carrasco, Marine & Florens, Jean-Pierre, 2017. "Functional linear regression with functional response," Journal of Econometrics, Elsevier, vol. 201(2), pages 269-291.
  12. Borochin, Paul & Yang, Jie, 2017. "Options, equity risks, and the value of capital structure adjustments," Journal of Corporate Finance, Elsevier, vol. 42(C), pages 150-178.
  13. Soini, Vesa & Lorentzen, Sindre, 2019. "Option prices and implied volatility in the crude oil market," Energy Economics, Elsevier, vol. 83(C), pages 515-539.
  14. Dierkes, Maik & Krupski, Jan & Schroen, Sebastian, 2022. "Option-implied lottery demand and IPO returns," Journal of Economic Dynamics and Control, Elsevier, vol. 138(C).
  15. repec:qut:auncer:2012_11 is not listed on IDEAS
  16. Chen, Ren-Raw & Hsieh, Pei-lin & Huang, Jeffrey, 2018. "Crash risk and risk neutral densities," Journal of Empirical Finance, Elsevier, vol. 47(C), pages 162-189.
  17. Frank de Jong & Joost Driessen & Antoon Pelsser, 2004. "On the Information in the Interest Rate Term Structure and Option Prices," Review of Derivatives Research, Springer, vol. 7(2), pages 99-127, August.
  18. Fornari, Fabio & Mele, Antonio, 2001. "Recovering the probability density function of asset prices using garch as diffusion approximations," Journal of Empirical Finance, Elsevier, vol. 8(1), pages 83-110, March.
  19. Chen, Gongmeng & Choi, Yoon K. & Zhou, Yong, 2008. "Detections of changes in return by a wavelet smoother with conditional heteroscedastic volatility," Journal of Econometrics, Elsevier, vol. 143(2), pages 227-262, April.
  20. Peter Hördahl & David Vestin, 2005. "Interpreting Implied Risk-Neutral Densities: The Role of Risk Premia," Review of Finance, European Finance Association, vol. 9(1), pages 97-137.
  21. Thomas Busch, 2008. "Testing the martingale restriction for option implied densities," Review of Derivatives Research, Springer, vol. 11(1), pages 61-81, March.
  22. Robert R. Bliss & Nikolaos Panigirtzoglou, 2001. "Recovering risk aversion from options," Working Paper Series WP-01-15, Federal Reserve Bank of Chicago.
  23. David M. Frankel, 2008. "Adaptive Expectations And Stock Market Crashes," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 49(2), pages 595-619, May.
  24. Byun, Suk Joon & Jeon, Byoung Hyun & Min, Byungsun & Yoon, Sun-Joong, 2015. "The role of the variance premium in Jump-GARCH option pricing models," Journal of Banking & Finance, Elsevier, vol. 59(C), pages 38-56.
  25. Ait-Sahalia, Yacine & Duarte, Jefferson, 2003. "Nonparametric option pricing under shape restrictions," Journal of Econometrics, Elsevier, vol. 116(1-2), pages 9-47.
  26. Joe Akira Yoshino, 2003. "Market Risk and Volatility in the Brazilian Stock Market," Journal of Applied Economics, Universidad del CEMA, vol. 6, pages 385-403, November.
  27. João Amaro de Matos & Nuno Silva, 2012. "Consuming durable goods when stock markets jump: a strategic asset allocation approach," GEMF Working Papers 2012-01, GEMF, Faculty of Economics, University of Coimbra.
  28. Martin Scheicher, 2003. "What drives investor risk aversion? Daily evidence from the German equity market," BIS Quarterly Review, Bank for International Settlements, June.
  29. Ben R. Craig & Ernst Glatzer & Joachim G. Keller & Martin Scheicher, 2003. "The forecasting performance of German stock option densities," Working Papers (Old Series) 0312, Federal Reserve Bank of Cleveland.
  30. Čίžek, Pavel & Komorád, Karel, 2005. "Implied trinomial trees," SFB 649 Discussion Papers 2005-007, Humboldt University Berlin, Collaborative Research Center 649: Economic Risk.
  31. Kliger, Doron & Levy, Ori, 2009. "Theories of choice under risk: Insights from financial markets," Journal of Economic Behavior & Organization, Elsevier, vol. 71(2), pages 330-346, August.
  32. Szu, Wen-Ming & Wang, Ming-Chun & Yang, Wan-Ru, 2011. "The determinants of exchange settlement practices and the implication of volatility smile: Evidence from the Taiwan Futures Exchange," International Review of Economics & Finance, Elsevier, vol. 20(4), pages 826-838, October.
  33. Li, Gang & Zhang, Chu, 2016. "On the relationship between conditional jump intensity and diffusive volatility," Journal of Empirical Finance, Elsevier, vol. 37(C), pages 196-213.
  34. V. L. Martin & G. M. Martin & G. C. Lim, 2005. "Parametric pricing of higher order moments in S&P500 options," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 20(3), pages 377-404.
  35. Kitsul, Yuriy & Wright, Jonathan H., 2013. "The economics of options-implied inflation probability density functions," Journal of Financial Economics, Elsevier, vol. 110(3), pages 696-711.
  36. repec:hum:wpaper:sfb649dp2006-069 is not listed on IDEAS
  37. Fengler, Matthias R. & Wang, Qihua, 2003. "Fitting the Smile Revisited: A Least Squares Kernel Estimator for the Implied Volatility Surface," SFB 373 Discussion Papers 2003,25, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
  38. Alessandro Beber & Luca Erzegovesi, 1999. "Distribuzioni di probabilità implicite nei prezzi delle opzioni," Alea Tech Reports 008, Department of Computer and Management Sciences, University of Trento, Italy, revised 14 Jun 2008.
  39. Da Dong & Qingfu Liu & Pingping Tao & Zhiliang Ying, 2021. "The pricing mechanism between ETF option and spot markets in China," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 41(8), pages 1286-1300, August.
  40. Justin Wolfers & Eric Zitzewitz, 2004. "Prediction Markets," Journal of Economic Perspectives, American Economic Association, vol. 18(2), pages 107-126, Spring.
  41. repec:hum:wpaper:sfb649dp2005-007 is not listed on IDEAS
  42. Rama CONT, 1998. "Beyond implied volatility: extracting information from option prices," Finance 9804002, University Library of Munich, Germany.
  43. Härdle, Wolfgang & Hlávka, Zdenek, 2009. "Dynamics of state price densities," Journal of Econometrics, Elsevier, vol. 150(1), pages 1-15, May.
  44. Bødskov Andersen, Allan & Wagener, Tom, 2002. "Extracting risk neutral probability densities by fitting implied volatility smiles: some methodological points and an application to the 3M Euribor futures option prices," Working Paper Series 0198, European Central Bank.
  45. Alexandre Ziegler, 2007. "Why Does Implied Risk Aversion Smile?," The Review of Financial Studies, Society for Financial Studies, vol. 20(3), pages 859-904.
  46. Almeida, Caio & Freire, Gustavo, 2022. "Pricing of index options in incomplete markets," Journal of Financial Economics, Elsevier, vol. 144(1), pages 174-205.
  47. Amaro de Matos, João & Silva, Nuno, 2014. "Consuming durable goods when stock markets jump: A strategic asset allocation approach," Journal of Economic Dynamics and Control, Elsevier, vol. 42(C), pages 86-104.
  48. Mizrach, Bruce, 2012. "Integration of the global carbon markets," Energy Economics, Elsevier, vol. 34(1), pages 335-349.
  49. Hiroshi Sasaki, 2016. "The skewness risk premium in equilibrium and stock return predictability," Annals of Finance, Springer, vol. 12(1), pages 95-133, February.
  50. Martin Cincibuch & David Vavra, 2004. "Testing for the uncovered interest parity using distributions implied by FX options," Money Macro and Finance (MMF) Research Group Conference 2003 16, Money Macro and Finance Research Group.
  51. repec:hum:wpaper:sfb649dp2005-021 is not listed on IDEAS
  52. Don H Kim & Mico Loretan & Eli M Remolona, 2010. "Contagion and risk premia in the amplification of crisis: evidence from Asian names in the global CDS market," BIS Papers chapters, in: Bank for International Settlements (ed.), The international financial crisis and policy challenges in Asia and the Pacific, volume 52, pages 318-339, Bank for International Settlements.
  53. Mikhail Chernov & Eric Ghysels, 1998. "What Data Should Be Used to Price Options?," CIRANO Working Papers 98s-22, CIRANO.
  54. Mark Broadie & Mikhail Chernov & Michael Johannes, 2009. "Understanding Index Option Returns," The Review of Financial Studies, Society for Financial Studies, vol. 22(11), pages 4493-4529, November.
  55. Martijn Cremers & Joost Driessen & Pascal Maenhout & David Weinbaum, 2004. "Individual Stock-Option Prices and Credit Spreads," Yale School of Management Working Papers amz2391, Yale School of Management, revised 01 Jan 2005.
  56. Alfredo Ibáñez, 2008. "The cross-section of average delta-hedge option returns under stochastic volatility," Review of Derivatives Research, Springer, vol. 11(3), pages 205-244, October.
  57. K.J. Martijn Cremers & Joost Driessen & Pascal Maenhout, 2008. "Explaining the Level of Credit Spreads: Option-Implied Jump Risk Premia in a Firm Value Model," The Review of Financial Studies, Society for Financial Studies, vol. 21(5), pages 2209-2242, September.
  58. Han, Bin, 2004. "Limits of Arbitrage, Sentiment and Pricing Kernal: Evidences from Index Options," Working Paper Series 2004-2, Ohio State University, Charles A. Dice Center for Research in Financial Economics.
  59. Leiss, Matthias & Nax, Heinrich H., 2018. "Option-implied objective measures of market risk," Journal of Banking & Finance, Elsevier, vol. 88(C), pages 241-249.
  60. Paul Borochin & Jie Yang, 2016. "Options, Equity Risks, and the Value of Capital Structure Adjustments," Finance and Economics Discussion Series 2016-097, Board of Governors of the Federal Reserve System (U.S.).
  61. Pedro Santa-Clara & Shu Yan, 2004. "Jump and Volatility Risk and Risk Premia: A New Model and Lessons from S&P 500 Options," NBER Working Papers 10912, National Bureau of Economic Research, Inc.
  62. Härdle, Wolfgang Karl & Blaskowitz, Oliver J. & Schmidt, Peter, 2004. "Skewness and Kurtosis Trades," Papers 2004,09, Humboldt University of Berlin, Center for Applied Statistics and Economics (CASE).
  63. repec:hum:wpaper:sfb649dp2005-020 is not listed on IDEAS
  64. Hlávka, Zdeněk & Peésta, Michal, 2006. "Constrained general regression in pseudo-Sobolev spaces with application to option pricing," SFB 649 Discussion Papers 2006-069, Humboldt University Berlin, Collaborative Research Center 649: Economic Risk.
  65. Pan, Jun, 2002. "The jump-risk premia implicit in options: evidence from an integrated time-series study," Journal of Financial Economics, Elsevier, vol. 63(1), pages 3-50, January.
  66. Bekaert, Geert & Hoerova, Marie, 2016. "What do asset prices have to say about risk appetite and uncertainty?," Journal of Banking & Finance, Elsevier, vol. 67(C), pages 103-118.
  67. Xu, Zheng, 2013. "Estimation of parametric homogeneous stochastic volatility pricing formulae based on option data," Economics Letters, Elsevier, vol. 120(3), pages 369-373.
  68. Yacine Aït‐Sahalia, 2002. "Telling from Discrete Data Whether the Underlying Continuous‐Time Model Is a Diffusion," Journal of Finance, American Finance Association, vol. 57(5), pages 2075-2112, October.
  69. Leiss, Matthias & Nax, Heinrich H., 2015. "Option-implied objective measures of market risk," LSE Research Online Documents on Economics 65446, London School of Economics and Political Science, LSE Library.
  70. Mete Kilic & Ivan Shaliastovich, 2019. "Good and Bad Variance Premia and Expected Returns," Management Science, INFORMS, vol. 67(6), pages 2522-2544, June.
  71. James S. Doran, 2020. "Volatility as an asset class: Holding VIX in a portfolio," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 40(6), pages 841-859, June.
  72. Sang Byung Seo & Jessica A. Wachter, 2013. "Option Prices in a Model with Stochastic Disaster Risk," NBER Working Papers 19611, National Bureau of Economic Research, Inc.
  73. Cremers, Martijn & Driessen, Joost & Maenhout, Pascal & Weinbaum, David, 2008. "Individual stock-option prices and credit spreads," Journal of Banking & Finance, Elsevier, vol. 32(12), pages 2706-2715, December.
  74. repec:hum:wpaper:sfb649dp2008-001 is not listed on IDEAS
  75. Chen, Wei-Peng & Chung, Huimin & Lien, Donald, 2016. "Price discovery in the S&P 500 index derivatives markets," International Review of Economics & Finance, Elsevier, vol. 45(C), pages 438-452.
  76. Sergey Isaenko, 2007. "Dynamic Equilibrium with Overpriced Put Options," Economic Notes, Banca Monte dei Paschi di Siena SpA, vol. 36(1), pages 1-26, February.
  77. Ana M. Monteiro & Antonio A. F. Santos, 2020. "Conditional risk-neutral density from option prices by local polynomial kernel smoothing with no-arbitrage constraints," Review of Derivatives Research, Springer, vol. 23(1), pages 41-61, April.
  78. Fengler, Matthias R. & Härdle, Wolfgang Karl & Mammen, Enno, 2005. "A dynamic semiparametric factor model for implied volatility string dynamics," SFB 649 Discussion Papers 2005-020, Humboldt University Berlin, Collaborative Research Center 649: Economic Risk.
  79. Alentorn, Amadeo & Markose, Sheri M, 2006. "Removing Maturity Effects of Implied Risk Neutral Densities and Related Statistics," Economics Discussion Papers 3722, University of Essex, Department of Economics.
  80. Alexandre Ziegler, 2002. "Why does Implied Risk Aversion Smile?," FAME Research Paper Series rp47, International Center for Financial Asset Management and Engineering.
  81. Almeida, Caio & Graveline, Jeremy J. & Joslin, Scott, 2011. "Do interest rate options contain information about excess returns?," Journal of Econometrics, Elsevier, vol. 164(1), pages 35-44, September.
  82. Glatzer, Ernst & Scheicher, Martin, 2003. "Modelling the implied probability of stock market movements," Working Paper Series 212, European Central Bank.
  83. Carverhill, Andrew & Luo, Dan, 2023. "A Bayesian analysis of time-varying jump risk in S&P 500 returns and options," Journal of Financial Markets, Elsevier, vol. 64(C).
  84. Shaliastovich, Ivan, 2015. "Learning, confidence, and option prices," Journal of Econometrics, Elsevier, vol. 187(1), pages 18-42.
  85. Madan, Dilip B., 2014. "Modeling and monitoring risk acceptability in markets: The case of the credit default swap market," Journal of Banking & Finance, Elsevier, vol. 47(C), pages 63-73.
  86. Leigh, Andrew & Wolfers, Justin & Zitzewitz, Eric, 2003. "What do Financial Markets Think of War in Iraq?," Research Papers 1785, Stanford University, Graduate School of Business.
  87. Lim, Kian Guan & Chen, Ying & Yap, Nelson K.L., 2019. "Intraday information from S&P 500 Index futures options," Journal of Financial Markets, Elsevier, vol. 42(C), pages 29-55.
  88. David Thesmar, 2008. "L’insoutenable rareté des catastrophes financières," Revue d'Économie Financière, Programme National Persée, vol. 7(1), pages 141-145.
  89. Takkabutr, Nattapol, 2013. "Option-Implied Risk Aversion Anomalies: Evidence From Japanese Market," Hitotsubashi Journal of Economics, Hitotsubashi University, vol. 54(2), pages 137-157, December.
  90. Fry-McKibbin, Renée & Martin, Vance L. & Tang, Chrismin, 2014. "Financial contagion and asset pricing," Journal of Banking & Finance, Elsevier, vol. 47(C), pages 296-308.
  91. Francisco Alonso & Roberto Blanco & Gonzalo Rubio, 2009. "Option-implied preferences adjustments, density forecasts, and the equity risk premium," Spanish Economic Review, Springer;Spanish Economic Association, vol. 11(2), pages 141-164, June.
  92. Härdle, Wolfgang Karl & Hlávka, Zdeněk, 2005. "Dynamics of state price densities," SFB 649 Discussion Papers 2005-021, Humboldt University Berlin, Collaborative Research Center 649: Economic Risk.
  93. Li, Gang & Zhang, Chu, 2013. "Diagnosing affine models of options pricing: Evidence from VIX," Journal of Financial Economics, Elsevier, vol. 107(1), pages 199-219.
  94. Ledoit, Olivier & Santa-Clara, Pedro & Yan, Shu, 2002. "Relative Pricing of Options with Stochastic Volatility," University of California at Los Angeles, Anderson Graduate School of Management qt7jp8f42t, Anderson Graduate School of Management, UCLA.
  95. Lockwood, Jimmy & Lockwood, Larry & Miao, Hong & Ramchander, Sanjay & Yang, Dongxiao, 2022. "The information content of ETF options," Global Finance Journal, Elsevier, vol. 53(C).
  96. Schmitz, Jochen & Ledebur, Oliver von, 2012. "The 2007 emerging corn price surge revisited – Was it expected or a large surprise?," 2012 Conference, August 18-24, 2012, Foz do Iguacu, Brazil 123971, International Association of Agricultural Economists.
  97. Marcello Pericoli, 2005. "Can option smiles forecast changes in interest rates? An application to the US, the UK and the euro area," Temi di discussione (Economic working papers) 545, Bank of Italy, Economic Research and International Relations Area.
  98. Chunpeng Yang & Bin Gao & Jianlei Yang, 2016. "Option pricing model with sentiment," Review of Derivatives Research, Springer, vol. 19(2), pages 147-164, July.
  99. Lim, Terence & Lo, Andrew W. & Merton, Robert C. & Scholes, Myron S., 2006. "The Derivatives Sourcebook," Foundations and Trends(R) in Finance, now publishers, vol. 1(5–6), pages 365-572, April.
  100. Duffie, Darrell, 2003. "Intertemporal asset pricing theory," Handbook of the Economics of Finance, in: G.M. Constantinides & M. Harris & R. M. Stulz (ed.), Handbook of the Economics of Finance, edition 1, volume 1, chapter 11, pages 639-742, Elsevier.
  101. Panigirtzoglou, Nikolaos & Skiadopoulos, George, 2004. "A new approach to modeling the dynamics of implied distributions: Theory and evidence from the S&P 500 options," Journal of Banking & Finance, Elsevier, vol. 28(7), pages 1499-1520, July.
  102. Yoshino, Joe Akira, 2003. "Market Risk and Volatility in the Brazilian Stock Market," Journal of Applied Economics, Universidad del CEMA, vol. 6(2), pages 1-19, November.
  103. Li, Bingxin, 2018. "Speculation, risk aversion, and risk premiums in the crude oil market," Journal of Banking & Finance, Elsevier, vol. 95(C), pages 64-81.
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