The Informational Content of Financial Options for Quantitative Asset Management: A Review
HANDBOOK OF QUANTITIVE ASSET MANAGEMENT, B. Scherer, K. Winston, ed., Oxford University Press, Forthcoming
36 Pages Posted: 1 Nov 2009 Last revised: 29 Mar 2012
Date Written: October 29, 2009
This paper surveys the literature that deals with the informational content of market option prices for the purposes of quantitative asset management. We review studies that have investigated whether market option prices may help a portfolio manager in the stock selection process, portfolio construction, risk measurement and management. The main ideas are highlighted and the advantages and limitations are outlined. The use of market option prices for stock market and style timing is also discussed and some key papers on the informational role of option’s volume are presented.
Keywords: Beta, Implied distributions, Implied volatility, Options, Portfolio construction, Stock selection, Value-at-Risk
JEL Classification: G1, G11, G13, G14, G34
Suggested Citation: Suggested Citation