What Goes into Risk-Neutral Volatility? EmpiricalEstimates of Risk and Subjective Risk Preferences
| Autor: | Stephen Figlewski |
|---|---|
| Rok vydání: | 2016 |
| Předmět: |
Economics and Econometrics
050208 finance business.industry 05 social sciences Distribution (economics) Implied volatility General Business Management and Accounting Risk neutral Accounting 0502 economics and business Log-normal distribution Econometrics Economics Market price Arbitrage Tail risk 050207 economics Volatility (finance) business Finance |
| Zdroj: | The Journal of Portfolio Management. 43:29-42 |
| ISSN: | 2168-8656 0095-4918 |
| Popis: | Under Black–Scholes (BS) assumptions, empirical volatility and risk-neutral volatility are given by a single parameter that captures all aspects of risk. Inverting the model to extract implied volatility from an option’s market price gives the market’s forecast of future empirical volatility. But real world returns are not lognormal, volatility is stochastic, and arbitrage is limited; thus, option prices embed both the market’s estimate of the empirical returns distribution and also investors’ risk attitudes, including possibly distinct preferences over different volatility-related aspects of the returns process, such as tail risk. All these influences are reflected in the risk-neutral density (RND), which can be extracted from option prices without requiring restrictive assumptions from a pricing model. The author computes daily RNDs for the SP others reflect risk attitudes, such as the level of investor confidence and the size of recent volatility forecast errors. |
| Databáze: | OpenAIRE |
| Externí odkaz: |
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