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Predictable Dynamics in Higher Order Risk-Neutral Moments: Evidence from the S&P 500 Options

We investigate whether there are predictable patterns in the dynamics of higher order risk-neutral moments extracted from the market prices of S&P 500 index options. To this end, we conduct a horse race among alternative forecasting models within an out-of-sample context over various forecasting horizons. We consider both a statistical and an economic setting. We find that higher risk-neutral moments can be statistically forecasted. However, only the one-day-ahead skewness forecasts can be economically exploited. This economic significance vanishes once we incorporate transaction costs. The results have implications for the dynamics of implied volatility surfaces..Printed Journal

Ketersediaan

Call NumberLocationAvailable
JFQA4803PSB lt.dasar - Pascasarjana1
Penerbit Cambridge Cambridge University Press.,
Edisi -
Subjek Risk
Market efficiency
Implied volatility surface
Model confidence set
Option strategies
neutral skewness
neutral kurtosis
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Deskripsi Fisik -
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