The Price of Covid-19-Induced Uncertainty in the Options Market

19 Pages Posted: 7 Dec 2021 Last revised: 30 Oct 2023

See all articles by Jianhui Li

Jianhui Li

University of Otago - Department of Accountancy and Finance

Xinfeng Ruan

Xi'an Jiaotong-Liverpool University

Jin E. Zhang

University of Otago, Otago Business School, Department of Accountancy and Finance

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

Suggested Citation

LL, Iris and Ruan, Xinfeng and Zhang, Jin E., The Price of Covid-19-Induced Uncertainty in the Options Market. Available at SSRN: https://ssrn.com/abstract=3963637 or http://dx.doi.org/10.2139/ssrn.3963637

Iris LL (Contact Author)

University of Otago - Department of Accountancy and Finance ( email )

P.O. Box 56
Dunedin, Otago 9010
New Zealand

Xinfeng Ruan

Xi'an Jiaotong-Liverpool University ( email )

111 Renai Road, SIP
, Lake Science and Education Innovation District
Suzhou, JiangSu province 215123
China

Jin E. Zhang

University of Otago, Otago Business School, Department of Accountancy and Finance ( email )

Dunedin, 9054
New Zealand
64 3 479 8575 (Phone)
64 3 479 8171 (Fax)

HOME PAGE: http://sites.google.com/site/jinzhanghomepage/home

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