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Tail and Volatility Indices from Option Prices
| Content Provider | Semantic Scholar |
|---|---|
| Author | Du, Jian Kapadia, Nikunj |
| Copyright Year | 2012 |
| Abstract | Both volatility and the tail of stock return distributions are impacted by discontinuities or large jumps in the stock price process. In this paper, we construct a model-free jump and tail index by measuring the impact of jumps on the Chicago Board Options Exchange's VIX index. Our jump and tail index is constructed from a portfolio of risk-reversals using 30-day index options, and measures time variations in the intensity of return jumps. Using the index, we document a 50-fold increase in jump fears during the financial crisis, and that jump fears predict index returns after controlling for stock return variability. |
| File Format | PDF HTM / HTML |
| Alternate Webpage(s) | https://people.umass.edu/nkapadia/docs/Du_Kapadia_August2012.pdf |
| Language | English |
| Access Restriction | Open |
| Content Type | Text |
| Resource Type | Article |
