LAUSR.org creates dashboard-style pages of related content for over 1.5 million academic articles. Sign Up to like articles & get recommendations!

Information content of right option tails: Evidence from S&P 500 index options

Photo from wikipedia

In this study, we investigate how useful the information content of out-of-the-money S&P 500 index call options is to predict the size and direction of the underlying index for the… Click to show full abstract

In this study, we investigate how useful the information content of out-of-the-money S&P 500 index call options is to predict the size and direction of the underlying index for the period 2004–2013. First, we demonstrate that behavior of the right tail of the option-implied risk-neutral distribution can be characterized by a single parameter. Subsequently, we find that weekly changes in the tail parameter can be used to devise trading strategies that are likely to outperform the underlying index on a risk-adjusted basis. Moreover, we demonstrate that even during a period when the strategies do not outperform the index, our approach can be used to obtain information about future index returns.

Keywords: index; information; option; 500 index; information content

Journal Title: Journal of Asset Management
Year Published: 2017

Link to full text (if available)


Share on Social Media:                               Sign Up to like & get
recommendations!

Related content

More Information              News              Social Media              Video              Recommended



                Click one of the above tabs to view related content.