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Event-day Options

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  • Jonathan H. Wright

Abstract

This paper considers new options on Treasury and stock futures than expire each Wednesday and Friday. I examine the volatilities implied by these options as of the night before expiration, and compare the volatilies just before FOMC days and employment report days with the volatilities on other Tuesdays or Thursdays, respectively. This can be used to measure the risk neutral uncertainty associated with FOMC announcements and employment reports. I can also compare the average physical and risk neutral uncertainty: the difference between them is the average variance risk premium. Average variance risk premia are large and significantly positive, especially for FOMC days. Lastly, I construct options-implied densities on the eve of FOMC and employment report days.

Suggested Citation

  • Jonathan H. Wright, 2020. "Event-day Options," NBER Working Papers 28306, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:28306
    Note: AP ME
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    More about this item

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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