Option Implied Risk Aversion Estimation ﹕Evidence from Taiwan Stock Index Option
Date Issued
2009
Date
2009
Author(s)
Wang, Sheng-Hung
Abstract
Our country option market established officially in December 24, 2001, until now passed through for eight years. The option products already become the main force products in the Taiwan stock market. While applied to the European-style TWSE index options from 21 June 2007 to 16 December 2008, this paper makes an assumption that the underlying asset price follow lognormal distribution to find out the relative risk aversion. Given the daily option closing price, we can transfer it to implied volatility by the B-S option pricing model. By the implied volatility and the utility functions of investors, we can find out the relative risk aversion. Our empirical results reveal significant evidence of positive relation between relative risk aversion and underlying asset price, time to maturity, option strike price, and the standard deviation of itself. The results also reveal the negative relation between relative risk aversion and implied volatility.
Subjects
risk aversion
option
Type
thesis
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