Role of Option Prices in Analyzing the Valuation Impact of Corporate Events

Abstract

Event study, panel regression, and difference-in-difference techniques are among the most prominent research methodologies in corporate finance. However, these techniques are inappropriate if corporate events are anticipated to some degree, as most events are. This paper proposes options as an additional model-free source of information to identify the likelihood and impact of corporate events. We show how to quantify event impact in a simple example and assert that few restrictions on the state space are required for the approach to work in more complex settings.

Keywords: Event Study, Options State Prices, Difference-in-Difference Method, Identification

JEL Classification: D44, G14