S&P 500 Index, an Option-Implied Risk Analysis

Abstract

The forward-looking nature of option market data allows one to derive economically-based and model-free conditional risk measures. The option-implied methodology is a tool for regulators and companies to perform external or internal risk analysis without posing assumptions on the distribution of returns. The article proposes the first comprehensive and extensive analysis of the performances of these measures compared with classical risk measures for the S&P500. Delivering good results both at short and long time horizons, the option-implied estimates emerge as a convenient alternative to the existing risk measures.

Keywords: Option Prices, VaR and CVaR, Long and Short-term Risk Measures, S&P 500 Index

JEL Classification: G13, G32, D81