The Informational Content of High-Frequency Option Prices

75 Pages Posted: 30 May 2017 Last revised: 13 Feb 2020

See all articles by Diego Amaya

Diego Amaya

Wilfrid Laurier University

Jean-François Bégin

Simon Fraser University

Geneviève Gauthier

HEC Montreal - Department of Decision Sciences; HEC Montreal - Department of Management Sciences

Date Written: February 11, 2020

Abstract

We propose the option realized variance as an observable variable to summarize information from high-frequency option data. This variable aggregates intraday option returns from midquote prices to compute the option's total variability for a given day. Using the S&P 500 index time series and options data, this paper documents the incremental information offered by this realized measure in predicting the index realized variance as well as the equity and variance risk premiums. In a parametric study, our results show that the information contained in the option realized variance improves the inference of model variables such as the instantaneous variance and its jumps. Parameter estimates indicate that omitting this information can affect the risk premium breakdown between jump and diffusive risks.

Keywords: High-frequency data, realized option variance, options, jump-diffusions

JEL Classification: C52, C55, C58, C63

Suggested Citation

Amaya, Diego and Bégin, Jean-François and Gauthier, Genevieve, The Informational Content of High-Frequency Option Prices (February 11, 2020). Available at SSRN: https://ssrn.com/abstract=2975355 or http://dx.doi.org/10.2139/ssrn.2975355

Diego Amaya

Wilfrid Laurier University ( email )

Waterloo, Ontario N2L 3C5
Canada

Jean-François Bégin

Simon Fraser University ( email )

8888 University Drive
Burnaby, British Columbia V5A 1S6
Canada

HOME PAGE: http://www.sfu.ca/~jbegin

Genevieve Gauthier (Contact Author)

HEC Montreal - Department of Decision Sciences ( email )

3000 Côte-Sainte-Catherine Road
Montreal, QC H2S1L4
Canada

HEC Montreal - Department of Management Sciences ( email )

Montreal, Quebec H3T 2A7
Canada

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