Option-implied information and predictability of extreme returns : [Version 28 Januar 2013]
- We study whether prices of traded options contain information about future extreme market events. Our option-implied conditional expectation of market loss due to tail events, or tail loss measure, predicts future market returns, magnitude, and probability of the market crashes, beyond and above other option-implied variables. Stock-specific tail loss measure predicts individual expected returns and magnitude of realized stock-specific crashes in the cross-section of stocks. An investor that cares about the left tail of her wealth distribution benefits from using the tail loss measure as an information variable to construct managed portfolios of a risk-free asset and market index.
Author: | Grigory Vilkov, Yan Xiao |
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URN: | urn:nbn:de:hebis:30:3-293748 |
URL: | http://ssrn.com/abstract=2209654 |
DOI: | https://doi.org/10.2139/ssrn.2209654 |
Parent Title (German): | SAFE working paper series ; No. 5 |
Series (Serial Number): | SAFE working paper (5) |
Publisher: | Goethe-Univ., House of Finance, Sustainable Architecture for Finance in Europe, SAFE |
Place of publication: | Frankfurt am Main |
Document Type: | Working Paper |
Language: | English |
Year of Completion: | 2013 |
Year of first Publication: | 2013 |
Publishing Institution: | Universitätsbibliothek Johann Christian Senckenberg |
Release Date: | 2013/04/18 |
Tag: | extreme value theory; implied correlation; option-implied distribution; portfolio optimization; predictability; tail measure; variance risk premium |
Issue: | Version 28 Januar 2013 |
Page Number: | 40 |
Last Page: | 36 |
HeBIS-PPN: | 337750548 |
Institutes: | Wirtschaftswissenschaften / Wirtschaftswissenschaften |
Wissenschaftliche Zentren und koordinierte Programme / House of Finance (HoF) | |
Wissenschaftliche Zentren und koordinierte Programme / Center for Financial Studies (CFS) | |
Dewey Decimal Classification: | 3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft |
Sammlungen: | Universitätspublikationen |
Licence (German): | Deutsches Urheberrecht |