Extracting Information from Options Markets: Smiles, State-Price Densities and Risk Aversion

19 Pages Posted: 13 Feb 2003

See all articles by Christophe Pérignon

Christophe Pérignon

HEC Paris - Finance Department

Christophe Villa

Audencia Nantes School of Management

Abstract

In this paper, recent techniques of estimating implied information from derivatives markets are presented and applied empirically to the French derivatives market. We determine nonparametric implied volatility functions, state-price densities and historical densities from a high-frequency CAC 40 stock index option dataset. Moreover, we construct an estimator of the risk aversion function implied by the joint observation of the cross-section of option prices and time-series of underlying asset value. We report a decreasing implied volatility curve with the moneyness of the option. The estimated relative risk aversion functions are positive and globally consistent with the decreasing relative risk aversion assumption.

Suggested Citation

Pérignon, Christophe and Villa, Christophe, Extracting Information from Options Markets: Smiles, State-Price Densities and Risk Aversion. Available at SSRN: https://ssrn.com/abstract=369167

Christophe Pérignon (Contact Author)

HEC Paris - Finance Department ( email )

1 rue de la Liberation
Jouy-en-Josas Cedex, 78351
France

Christophe Villa

Audencia Nantes School of Management ( email )

8 route de la Jonelière, BP 31222
Nantes Cedex 3, Cedex 3 44312
France

HOME PAGE: http://www.audencia.com/?id=970

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
17
Abstract Views
1,011
PlumX Metrics