Option-Implied Measures of Equity Risk

Option-Implied Measures of Equity Risk

Equity risk measured by beta is of great interest to both academics and practitioners. Existing estimates of beta use historical returns. Many studies have found option-implied volatility to be a strong predictor of future realized volatility. We find that option-implied volatility and skewness are...

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Veröffentlicht in:Review of Finance 2012-04, Vol.16 (2), p.385-428
Hauptverfasser: Chang, Bo-Young, Christoffersen, Peter, Jacobs, Kris, Vainberg, Gregory
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Sprache:eng
Schlagworte:
Beta
Put & call options
Rates of return
Studies
Volatility
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container_end_page 428
container_issue 2
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container_title Review of Finance
container_volume 16
creator Chang, Bo-Young
Christoffersen, Peter
Jacobs, Kris
Vainberg, Gregory
description Equity risk measured by beta is of great interest to both academics and practitioners. Existing estimates of beta use historical returns. Many studies have found option-implied volatility to be a strong predictor of future realized volatility. We find that option-implied volatility and skewness are also good predictors of future realized beta. Motivated by this finding, we establish a set of assumptions needed to construct a beta estimate from option-implied return moments using equity and index options. This beta can be computed using only option data on a single day. It is therefore potentially able to reflect sudden changes in the structure of the underlying company.
doi_str_mv 10.1093/rof/rfq029
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source Oxford University Press Journals All Titles (1996-Current); Business Source Complete
subjects Beta
Put & call options
Rates of return
Studies
Volatility
title Option-Implied Measures of Equity Risk
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