COVID-19 and Market Expectations: Evidence from Option-Implied Densities

10 Pages Posted: 2 Jun 2020 Last revised: 20 Jul 2020

See all articles by Michael Hanke

Michael Hanke

University of Liechtenstein

Maria Kosolapova

Free University of Bozen-Bolzano

Alex Weissensteiner

Free University of Bolzano Bozen

Date Written: June 2, 2020

Abstract

We compare risk-neutral densities from equity index options across several markets during the early phase of the COVID-19 pandemic. These densities reflect market expectations regarding its economic impact. The markets reacted abruptly and simultaneously initially, but with a marked time lag after ignoring the first clear warning signs for several weeks. As the crisis unfolds, option prices increasingly reflect differences in anticipated impact on and economic resiliency of these markets.

Keywords: COVID-19, Risk-neutral Densities, Equity Index Options

JEL Classification: G01, G13

Suggested Citation

Hanke, Michael and Kosolapova, Maria and Weissensteiner, Alex, COVID-19 and Market Expectations: Evidence from Option-Implied Densities (June 2, 2020). Available at SSRN: https://ssrn.com/abstract=3616625 or http://dx.doi.org/10.2139/ssrn.3616625

Michael Hanke

University of Liechtenstein ( email )

Fuerst Franz Josef-Strasse
Vaduz, FL-9490
Liechtenstein

Maria Kosolapova

Free University of Bozen-Bolzano ( email )

Universitätsplatz 1
Bozen-Bolzano, BZ 39100
Italy

Alex Weissensteiner (Contact Author)

Free University of Bolzano Bozen ( email )

Universitätsplatz 1
Bolzano, 39100
+39 0471 013496 (Phone)

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