The Informational Content of High-Frequency Option Prices

74 Pages Posted: 30 May 2017 Last revised: 15 Jun 2019

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: June 14, 2019

Abstract

We propose the realized option variance as an observable variable to summarize the information from high-frequency option prices. Using empirical parametric and nonparametric studies, this paper documents the incremental information offered by this realized measure. We find that this variable contains additional information on future index variability and is useful to predict risk premiums. In a parametric study, our empirical results show that the information contained in the realized option variance improves the inference of model variables such as the instantaneous variance and variance jumps of the S&P 500 index. Parameter estimates indicate that the risk premium breakdown between jump and diffusive risks is affected by the omission of this information.

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 (June 14, 2019). 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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