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Perception des risques sur les marchés, construction d'un indice élaboré à partir des smiles d'options et test de stratégies

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  • Marie Brière
  • Kamal Chancari

Abstract

Risk perception on financial markets, construction of anindicator based on options smiles and test of strategies This work aims to construct an indicator reflecting the risk perception on different markets and to test if this information is valuable in elaborating allocation strategies. We use daily option smiles data on 5markets (S?P 500, DAX, Nikkei, euro/$ and $/yen) during the period October 1999 ? June 2003 to calculate the distribution of market expectations (the risk neutral density function) each day. By comparing this distribution to the historical density function (calculated using a kernel estimator), we deduce investor risk aversion, which allows us to build an indicator of risk perception for each of the 5markets as well as a global indicator. We test the profitability of strategies based on our indicators. We underweight risky assets when risk aversion is high and overweight when it is low. Comparing the performances of our test portfolios with that of a benchmark composed of 50%/50 % of risky/non risky assets, we show that signals given by our risk aversion indicators help to improve portfolio performances, except for the forex positions.

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Bibliographic Info

Article provided by Dalloz in its journal Revue d'économie politique.

Volume (Year): Volume 114 (2004)
Issue (Month): 4 ()
Pages: 527-555

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Handle: RePEc:cai:repdal:redp_144_0527

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Web page: http://www.cairn.info/revue-d-economie-politique.htm

Related research

Keywords: risk neutral density; option pricing; forex options; stock indices options; risk aversion; strategies;

References

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  1. Yacine Ait-Sahalia & Andrew W. Lo, 2000. "Nonparametric Risk Management and Implied Risk Aversion," NBER Working Papers 6130, National Bureau of Economic Research, Inc.
  2. Michael D. Bordo & Michael J. Dueker & David C. Wheelock, 2001. "Aggregate price shocks and financial instability: a historical analysis," Working Papers 2000-005, Federal Reserve Bank of St. Louis.
  3. Buchen, Peter W. & Kelly, Michael, 1996. "The Maximum Entropy Distribution of an Asset Inferred from Option Prices," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 31(01), pages 143-159, March.
  4. Rosenberg, Joshua V. & Engle, Robert F., 2002. "Empirical pricing kernels," Journal of Financial Economics, Elsevier, vol. 64(3), pages 341-372, June.
  5. Jackwerth, Jens Carsten & Rubinstein, Mark, 1996. " Recovering Probability Distributions from Option Prices," Journal of Finance, American Finance Association, vol. 51(5), pages 1611-32, December.
  6. Mc Manus, Des, 1999. "The Information Content of Interest Rate Futures Options," Working Papers 99-15, Bank of Canada.
  7. Jens Carsten Jackwerth, 1998. "Recovering Risk Aversion from Option Prices and Realized Returns," Finance 9803002, EconWPA.
  8. Jondeau, Eric & Rockinger, Michael, 1998. "Reading the Smile: The Message Conveyed by Methods which Infer Risk Neutral Densities," CEPR Discussion Papers 2009, C.E.P.R. Discussion Papers.
  9. Black, Fischer, 1976. "The pricing of commodity contracts," Journal of Financial Economics, Elsevier, vol. 3(1-2), pages 167-179.
  10. Harrison, J. Michael & Pliska, Stanley R., 1981. "Martingales and stochastic integrals in the theory of continuous trading," Stochastic Processes and their Applications, Elsevier, vol. 11(3), pages 215-260, August.
  11. Cox, John C. & Ross, Stephen A., 1976. "The valuation of options for alternative stochastic processes," Journal of Financial Economics, Elsevier, vol. 3(1-2), pages 145-166.
  12. Allan M. Malz, 1997. "Option-implied probability distributions and currency excess returns," Staff Reports 32, Federal Reserve Bank of New York.
  13. Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-54, May-June.
  14. Corrado, Charles J & Su, Tie, 1996. "Skewness and Kurtosis in S&P 500 Index Returns Implied by Option Prices," Journal of Financial Research, Southern Finance Association & Southwestern Finance Association, vol. 19(2), pages 175-92, Summer.
  15. Mark Illing & Ying Liu, 2003. "An Index of Financial Stress for Canada," Working Papers 03-14, Bank of Canada.
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