The information content of option-implied tail risk on the future returns of the underlying asset
Journal
Journal of Futures Markets
Journal Volume
38
Journal Issue
4
Pages
493-510
Date Issued
2018
Author(s)
Yen K.-C.
Abstract
We compile option-implied tail loss and gain measures based on a deep out-of-the-money option pricing formula derived by applying ¡§extreme value theory,¡¨ and then use these measures to investigate the information content of option-implied tail risk on the future returns of the underlying assets. Our empirical analysis shows that both tail measures implied by S&P 500 and VIX options can predict future changes in the corresponding underlying assets and are informative on the future returns of the S&P 500 index. The relationships are particularly strong during periods of economic recession and driven by the tail-risk premium. ? 2017 Wiley Periodicals, Inc.
Subjects
extreme value theory
options
S&P 500
tail measures
VIX
SDGs
Type
journal article