Extraction of Market Expectations from Option Prices
Palomino Lazo, Carlos Alberto / Kanyankogote, Aimée R.
This book estimates risk neutral parameters of a jump diffusion model, as in Bates (1991), implicit in the option prices on the S&P500, futures over the period 2006-2008. Additionally, it investigates the extent to which market participants anticipated the financial market crash of 2008. We find that high levels of skewness premium are detectable in the short maturity out-of-the-money put options as early as July 2007. Nevertheless, market exp...