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Option-Implied Systematic Disaster Concern

Author
Liu, Fang Ph.D
Abstract
The covariation of option-implied disaster concern of the market index and individual stocks allows me to estimate the conditional and systematic disaster concern of stocks with respect to the market. The estimated conditional and systematic disaster concern variables can be interpreted in terms of the risk-neutral conditional disaster probabilities, and they strongly predict future realizations of stock-level disasters and stock returns in different market states. This suggests that the comovement of option prices between stocks and the market index carries forward-looking information on their joint tail distributions.
Date Issued
2017-11-01Subject
stock market; disaster risk; market index; option prices
Rights
Required Publisher Statement: Copyright held by the author.
Type
preprint