Disasters Implied by Equity Index Options

Equity correlations implied by index options

How Useful are Implied Distributions? Evidence from Stock-Index Options

SPRING 2000 THE JOURNAL OF DERIVATIVES 1 Option prices can reveal implied (risk-neutral) distributions, but it is not clear whether these are useful for forecasting or hedging or for revealing the current sentiment of investors. The authors estimate the implied distribution for stock index options in London as a mixture of two lognormals over the period 1987-1997 and find that this method is mu...

Pricing Options Using Implied Trees:

Previously, few, if any, comparative tests of performance of Jackwerth’s (1997) generalized binomial tree (GBT) and Derman and Kani (1994) implied volatility tree (IVT) models were done. In this paper, we propose five different weight functions in GBT and test them empirically compared to both the Black-Scholes model and IVT. We use the daily settlement prices of FTSE-100 index options from Jan...

The Cross Section of Equity Implied Variance

The implied variances of 167 firms are examined over the period 1991 through 1995. The traditional market model of returns is shown to be a good first order model for explaining the cross section of variances though firm specific variances appear to exhibit stronger covariance than the market model predicts. The existence of a positive bias over realized and forecast variances is documented. Th...

The Value of Australian Dividends Implied by Exchange Traded Options

The valuation of dividend imputation credits is a currently unresolved issue facing managers, investors and regulators in the Australian market. This thesis builds upon Officer’s (1994) cost of capital, under imputation, framework by seeking to identify the value of imputation credits implied by option prices. It extends the existing imputation literature by using widely traded common stock opt...