The Price of Covid-19-Induced Uncertainty in the Options Market
19 Pages Posted: 7 Dec 2021 Last revised: 30 Oct 2023
Abstract
Using three option market measures, we find evidence from 28 countries/regions that the COVID-19-induced uncertainty is priced in the index exchange-traded funds (ETF) options market. Specifically, options that provide protection to hedge against price risk, variance risk, and tail risk following the World Health Organization (WHO) announcements related to COVID-19 are more valuable. Moreover, option protection against such risk tend to be more expensive when the governments place stricter COVID-19 restrictions.
Keywords: Uncertainty, Options market, COVID-19, WHO announcements, Government response
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