Options market ambiguity and its information content

Chen, Qiang; Han, Yu

doi:10.1016/j.finmar.2022.100790

Cited by 2 publications

(4 citation statements)

References 50 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…Based on the EUUP scheme, different methods have been proposed to recover a set of priors of the underlying asset returns from the options data. Izhakian and Izhakian (2020) and Chen and Han (2023) construct a set of Gaussian priors for the underlying asset return, although different methods are used to specify the parameters of these priors. Taking the Gaussian prior as a special case, we can use general models beyond the geometric Brownian motion to recover the priors.…”

Section: Literature Reviewmentioning

confidence: 99%

“…More specifically, we calibrated a set of alternative models to the available data of options instead of deriving the mean and variance of the normal priors using option prices, interest rates, or the VIX data. (Izhakian and Izhakian 2020;Chen and Han 2023). Furthermore, our methods and the methods proposed by Izhakian and Izhakian (2020) provide the daily optionimplied ambiguity based on the specific quotation of the options, while rolling-window or some other techniques have to be used to calculate the daily option-implied ambiguity with the methods of Chen and Han (2023).…”

Section: Literature Reviewmentioning

confidence: 99%

“…(Izhakian and Izhakian 2020;Chen and Han 2023). Furthermore, our methods and the methods proposed by Izhakian and Izhakian (2020) provide the daily optionimplied ambiguity based on the specific quotation of the options, while rolling-window or some other techniques have to be used to calculate the daily option-implied ambiguity with the methods of Chen and Han (2023). The priors in Izhakian and Izhakian (2020) are of the same size as the number of available options, whereas in our model-driven approach, they are equivalent to the number of days within the longest maturity of the available options.…”

Section: Literature Reviewmentioning

confidence: 99%

“…The priors in Izhakian and Izhakian (2020) are of the same size as the number of available options, whereas in our model-driven approach, they are equivalent to the number of days within the longest maturity of the available options. Compared with the methodology of Izhakian and Izhakian (2020) and Chen and Han (2023), our methodology aggregates different calibrated models to mitigate model uncertainty and recovers the set of priors along the time-dimension.…”

Section: Literature Reviewmentioning

confidence: 99%

See 3 more Smart Citations

Option‐Implied Ambiguity and Equity Return Predictability

Liu,

Chen

et al. 2024

Journal of Futures Markets

View full text Add to dashboard Cite

We propose a model‐guided option‐implied ambiguity measure to capture uncertainty regarding the return distribution of a risky asset underlying a set of options, and investigate its predictive power on the asset return. A representative investor's ambiguous beliefs or prior distributions on the underlying asset returns are extracted from the market prices of options, the expected volatility of which is then defined as the option‐implied ambiguity and is calculated in line with Brenner and Izhakian. Simulated paths of the calibrated models are utilized to compute all pertinent probability characteristics from a forward‐looking perspective. The empirical results with SSE 50 ETF options indicate that the proposed option‐implied ambiguity has strong predictive power for future returns of SSE 50 ETF. Out‐of‐sample tests also verify the significant predictive ability of the option‐implied ambiguity to the equity returns.

show abstract

Section: Literature Reviewmentioning

confidence: 99%