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Option implied ambiguity and its information content: Evidence from the subprime crisis
December 2015 • Tarik Driouchi, Lenos Trigeorgis, Raymond H.Y. So
Abstract This paper studies option investors’ tendency to deviate from risk-neutrality around extreme financial events. We incorporate ambiguity into Black–Scholes theory and analyze the lead–lag association between option and stock markets during 2006–2008. Our findings from the Standard and Poor’s 500 index options reveal that investors’ option implied ambiguity moderates the lead–lag relationship between implied and realized volatility. We find that implied ambiguity contains predictive realized volatility info…