scholarly journals Market Instability, Investor Sentiment, and Probability Judgment Error in Index Option Prices

2021 ◽  
Author(s):  
G. Charles-Cadogan
Keyword(s):  
Investor Sentiment ◽  
Probability Judgment ◽  
Option Prices ◽  
Judgment Error ◽  
Market Instability ◽  
Index Option

scholarly journals Option-Based Estimation of the Price of Coskewness and Cokurtosis Risk

2020 ◽  
pp. 1-27
Author(s):  
Peter Christoffersen ◽  
Mathieu Fournier ◽  
Kris Jacobs ◽  
Mehdi Karoui
Keyword(s):  
Risk Premium ◽  
Risk Premia ◽  
Factor Models ◽  
Option Prices ◽  
Variance Risk Premium ◽  
Market Return ◽  
Price Of Risk ◽  
Variance Risk ◽  
Index Option

Abstract We show that the prices of risk for factors that are nonlinear in the market return can be obtained using index option prices. The price of coskewness risk corresponds to the market variance risk premium, and the price of cokurtosis risk corresponds to the market skewness risk premium. Option-based estimates of the prices of risk lead to reasonable values of the associated risk premia. An analysis of factor models with coskewness risk indicates that the new estimates of the price of risk improve the models’ performance compared with regression-based estimates.

Investor Sentiment and Option Prices

2007 ◽  
Vol 21 (1) ◽  
pp. 387-414 ◽  
Author(s):  
Bing Han
Keyword(s):  
Investor Sentiment ◽  
Option Prices

Do the Option Prices Forecast Spot Price? Evidence from the KOSPI 200 Index Option Market

2011 ◽  
Vol 19 (3) ◽  
pp. 251-280
Author(s):  
Byungwook Choi
Keyword(s):  
Implied Volatility ◽  
Parametric Method ◽  
Trading Strategy ◽  
Stock Index ◽  
Rate Of Return ◽  
Spot Price ◽  
Option Prices ◽  
Daily Rate ◽  
Risk Neutral ◽  
Index Option

This study investigates a forecasting power of volatility curvatures and risk neutral densities implicit in KOSPI 200 option prices by analyzing minute by minute historical index option intraday trading data from January of 2007 to January of 2011. We begin by estimating implied volatility functions and risk neutral price densities based on non-parametric method every minute and by calculating volatility curvature and skewness premium. We then compare the daily rate of return of the signal following trading strategy that we buy (sell) a stock index when the volatility curvature or skewness premium increases (decreases) with that of an intraday buy-and-hold strategy that we buy a stock index on 9:05AM and sell it on 2:50PM. We found that the rate of return of the signal following trading strategy was significantly higher than that of the intraday buy-and-hold strategy, which implies that the option prices have a strong forecasting power on the direction of stock market. Another finding is that the information contents of option prices disappear after three or four minutes.

Investor Sentiment and Option Prices

2005 ◽  
Author(s):  
Bing Han
Keyword(s):  
Investor Sentiment ◽  
Option Prices

Index Option Prices and Stock Market Momentum

2004 ◽  
Vol 77 (4) ◽  
pp. 835-874 ◽  
Author(s):  
Kaushik Amin ◽  
Joshua D. Coval ◽  
H. Nejat Seyhun
Keyword(s):  
Stock Market ◽  
Option Prices ◽  
Index Option

How Does Investor Sentiment Affect Implied Risk-Neutral Distributions of Call and Put Options?

2015 ◽  
Vol 18 (02) ◽  
pp. 1550010 ◽  
Author(s):  
Wen-Ming Szu ◽  
Yi-Chen Wang ◽  
Wan-Ru Yang
Keyword(s):  
Asset Prices ◽  
Investor Sentiment ◽  
Stock Index ◽  
Option Prices ◽  
Differential Impact ◽  
Underlying Asset ◽  
Put Options ◽  
Put Option ◽  
Risk Neutral ◽  
Skewness And Kurtosis

This paper investigates the characteristics of implied risk-neutral distributions separately derived from Taiwan stock index call and put options prices. Differences in risk-neutral skewness and kurtosis between call and put options indicate deviations from put-call parity. We find that the sentiment effect is significantly related to differences between call and put option prices. Our results suggest the differential impact of investor sentiment and consumer sentiment on call and put option traders' expectations about underlying asset prices. Moreover, rational and irrational sentiment components have different influences on call and put option traders' beliefs.

Artificial neural network model of the hybrid EGARCH volatility of the Taiwan stock index option prices

2008 ◽  
Vol 387 (13) ◽  
pp. 3192-3200 ◽  
Author(s):  
Chih-Hsiung Tseng ◽  
Sheng-Tzong Cheng ◽  
Yi-Hsien Wang ◽  
Jin-Tang Peng
Keyword(s):  
Neural Network ◽  
Artificial Neural Network ◽  
Network Model ◽  
Neural Network Model ◽  
Artificial Neural Network Model ◽  
Stock Index ◽  
Option Prices ◽  
Artificial Neural ◽  
Index Option

Influence of individual investor sentiment on Taiwan option prices during 2007-2010 financial crisis

2015 ◽  
Vol 41 (5) ◽  
pp. 437-464 ◽  
Author(s):  
Wen-Ming Szu ◽  
Wan-Ru Yang
Keyword(s):  
Confidence Interval ◽  
Investor Sentiment ◽  
Stock Index ◽  
Option Prices ◽  
Individual Investor ◽  
Content Type ◽  
The Us ◽  
Risk Neutral ◽  
The Impact ◽  
Option Market

Purpose – This paper investigates changes in risk-neutral distribution derived from Taiwan stockindex options under different market conditions. The purpose of this paper is to explore whether individual investor sentiment significantly influences the Taiwan option prices. Design/methodology/approach – The authors adopt the optimization method to estimate the risk-neutral distribution from the Taiwan stock index options and use the t-test to examine the difference in risk-neutral skewness, kurtosis, and confidence interval between the pre-crisis and crisis periods. This paper tests the impact of individual investor sentiment on risk-neutral skewness and confidence interval in two sub-periods. Findings – The authors find that errors in individual investors’ expectations significantly influence the Taiwan stock index option prices. Research limitations/implications – The data concerning the sentiment of speculative institutional investors are incomplete for the Taiwan option market. Therefore, this paper focusses on the analysis of individual investor sentiment. Further research can study the impact of institutional investor sentiment in emerging markets. Social implications – The previous literature has suggested that option prices reflect information before the information is revealed in stock prices. Therefore, an important implication is to analyze the information quality revealed in option prices by studying whether the changes in option prices are due to investor sentiment or non-sentiment-related components. Originality/value – Most of the studies in the literature have focussed on the US option market, and their applicability may vary across different microstructures. This paper shows that the influence of individual investor sentiment in an emerging market is different from that in the US market.

A Tractable Framework for Option Pricing with Dynamic Market Maker Inventory and Wealth

2019 ◽  
Vol 55 (4) ◽  
pp. 1117-1162
Author(s):  
Mathieu Fournier ◽  
Kris Jacobs
Keyword(s):  
Stochastic Volatility ◽  
Risk Premium ◽  
Reduced Form ◽  
Market Maker ◽  
Option Prices ◽  
Stochastic Volatility Models ◽  
Variance Risk Premium ◽  
Volatility Models ◽  
Variance Risk ◽  
Index Option

We develop a tractable dynamic model of an index option market maker with limited capital. We solve for the variance risk premium and option prices as a function of the asset dynamics and market maker option holdings and wealth. The market maker absorbs end users’ positive demand and requires a more negative variance risk premium when she incurs losses. We estimate the model using returns, options, and inventory and find that it performs well, especially during the financial crisis. The restrictions imposed by nested existing reduced-form stochastic-volatility models are strongly rejected in favor of the model with a market maker.

scholarly journals Application of ensemble of recurrent neural networks for forecasting of stock market sentiments

Equilibrium ◽  
2018 ◽  
Vol 13 (1) ◽  
pp. 7-27 ◽  
Author(s):  
Nijole Maknickiene ◽  
Indre Lapinskaite ◽  
Algirdas Maknickas
Keyword(s):  
Stock Market ◽  
Prediction Model ◽  
Financial Markets ◽  
Investor Sentiment ◽  
Value Added ◽  
Individual Investors ◽  
Stock Indices ◽  
Market Dynamic ◽  
Market Instability ◽  
The Individual

Research background: Research and measurement of sentiments, and the integration of methods for sentiment analysis in forecasting models or trading strategies for financial markets are gaining increasing attention at present. The theories that claim it is difficult to predict the individual investor’s decision also claim that individual investors cause market instability due to their irrationality. The existing instability increases the need for scientific research.   Purpose of the article: This paper is dedicated to establishing a link between the individual investors’ behavior, which is expressed as sentiments, and the market dynamic, and is evaluated in the stock market. This article hypothesizes that the dynamics in the market is unequivocally related to the individual investor’s sentiments, and that this relationship occurs when the sentiments are expressed strongly and are unlimited. Methods: The research was carried out invoking the method of Evolino RNN-based prediction model. The data for the research from AAII (American Association of Individual Investors), an investor sentiment survey, were used. Stock indices and sentiments are forecasted separately before being combined as a single composition of distributions. Findings & Value added: The novelty of this paper is the prediction of sentiments of individual investors using an Evolino RNN-based prediction model. The results of this paper should be seen not only as the prediction of the connection and composition of investors’ sentiments and stock indices, but also as the research of the dynamic of individual investors’ sentiments and indices.

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