Siegel (1995) has developed a technique with which the systematic risk of a security (beta) can be estimated without recourse to historical capital market data. Instead, beta is estimated implicitly from the current market prices of exchange options that enable the exchange of a security against shares on the market index. Because this type of exchange options is not currently traded on the capital markets, Siegel's technique cannot yet be used in practice. This article will show that beta can also be estimated implicitly from the current market prices of plain vanilla options, based on the Capital Asset Pricing Model. We provide empirical evidence on implicit betas using prices of exchange options from the EUREX over years 2000 to 2004.
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Paper provided by DIW Berlin, German Institute for Economic Research in its series Discussion Papers of DIW Berlin with number
640.
Length: 20 p. Date of creation: 2006 Date of revision: Publication status: Published in: The Journal of Futures Markets 27 (2007) 10, 961-979 Handle: RePEc:diw:diwwpp:dp640
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