{"title":"Linear extrapolation and model-free option implied moments","authors":"","doi":"10.1016/j.bir.2024.01.009","DOIUrl":null,"url":null,"abstract":"<div><div>This study proposes an approach for assessing the effectiveness of linear extrapolation (LE) for the implied moment estimators even in cases in which the true values of implied moments are unknown. To this end, we develop truncation sensitivity functions for simulation and empirical analyses. LE proves effective for implied volatility, skewness, and kurtosis estimators. However, higher moment (i.e., implied skewness and kurtosis) estimators exhibit sensitivity to truncation, that is, the absence of option prices in the outermost region of the strike price domain, regardless of the use of LE to address truncation.</div></div>","PeriodicalId":46690,"journal":{"name":"Borsa Istanbul Review","volume":"24 ","pages":"Pages 88-106"},"PeriodicalIF":6.3000,"publicationDate":"2024-10-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"0","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"Borsa Istanbul Review","FirstCategoryId":"96","ListUrlMain":"https://www.sciencedirect.com/science/article/pii/S2214845024000097","RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q1","JCRName":"BUSINESS, FINANCE","Score":null,"Total":0}
引用次数: 0
Abstract
This study proposes an approach for assessing the effectiveness of linear extrapolation (LE) for the implied moment estimators even in cases in which the true values of implied moments are unknown. To this end, we develop truncation sensitivity functions for simulation and empirical analyses. LE proves effective for implied volatility, skewness, and kurtosis estimators. However, higher moment (i.e., implied skewness and kurtosis) estimators exhibit sensitivity to truncation, that is, the absence of option prices in the outermost region of the strike price domain, regardless of the use of LE to address truncation.
本研究提出了一种方法,即使在隐含矩真实值未知的情况下,也能评估线性外推法(LE)对隐含矩估计器的有效性。为此,我们开发了用于模拟和实证分析的截断敏感性函数。事实证明,LE 对隐含波动率、偏度和峰度估计器有效。然而,高阶矩(即隐含偏度和峰度)估计器对截断(即行权价域最外层区域没有期权价 格)表现出敏感性,无论是否使用 LE 来解决截断问题。
期刊介绍:
Peer Review under the responsibility of Borsa İstanbul Anonim Sirketi. Borsa İstanbul Review provides a scholarly platform for empirical financial studies including but not limited to financial markets and institutions, financial economics, investor behavior, financial centers and market structures, corporate finance, recent economic and financial trends. Micro and macro data applications and comparative studies are welcome. Country coverage includes advanced, emerging and developing economies. In particular, we would like to publish empirical papers with significant policy implications and encourage submissions in the following areas: Research Topics: • Investments and Portfolio Management • Behavioral Finance • Financial Markets and Institutions • Market Microstructure • Islamic Finance • Financial Risk Management • Valuation • Capital Markets Governance • Financial Regulations