Option-Implied Risk Measures: An Empirical Examination on the S&P500 Index

Abstract

The forward-looking nature of option market data allows one to derive economically-based and model-free risk measures. This article proposes an extensive analysis of the performances of option-implied VaR and CVaR, and compare them with classical risk measures for the S&P500 Index. Delivering good results both at short and long time horizons, the proposed option-implied risk metrics 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