Home > Research > Seminars > 正文

Seminars

Using Equity, Index and CommodityOptions to Obtain Forward-Looking Measures of Equity and Commodity Betas, andIdiosyncratic Variance

Publish Date: 2019/06/26 11:04:16    Hits:

Title: “Using Equity, Index and CommodityOptions to Obtain Forward-Looking Measures of Equity and Commodity Betas, andIdiosyncratic Variance

Lecturer:Prof. Ehud Ronn,McCombs School ofBusiness, University of Texas at Austin

Time:2019.6.29 10:00-11:30

Location:A622 

Invited by:Fan Ying

Abstract:

Defining forward-looking betas and forward-lookingidiosyncratic variance as perturbations of historical estimates, we use themarket prices of equity and index options under a single-factor market model tocompute forward-looking term structures of equity betas and idiosyncraticvariance.

Using options on oil companies equities, we are able todiscern the market’s perceptions regarding these oil companies’prospective beta, and hence signaling their future sensitivity to marketchanges. In turn, the prospective fraction of idiosyncratic variance relativeto total variance provides a forward-looking market measure for onset ofcrises, when idiosyncratic risk fades relative to systematic, and complementingthe information conveyed by VIX and the CBOE's equity implied correlation.

Extending the one-factor model to a two-factor one,consider again the perturbations to historical idiosyncratic variance. We areable to confirm the forward-looking two-factor idiosyncratic variance ispositively correlated with its one-factor analogue. Together, both of theseforward-looking idiosyncratic variances constitute a prospective indicator of acrisis, and the emergence from one, when using VIX and the implied correlationICJ as benchmarks.