Hostname: page-component-cd9895bd7-fscjk Total loading time: 0 Render date: 2024-12-25T08:02:07.543Z Has data issue: false hasContentIssue false
  • English
  • Français

On Measuring the Risk of Common Stocks Implied by Options Prices: A Note

Published online by Cambridge University Press:  06 April 2009

Menachem Brenner  and
Dan Galai
Get access Rights & Permissions [Opens in a new window]

Abstract

This paper examines the implied standard deviation (ISD) estimated from transactons data on options, using the Black-Scholes pricing model. It was found that the distribution of the ISD is symmetric, though not normal. Also, the ISD based on the last daily observation deviates significantly from the daily average ISD. It is suggested that the daily average is a more reliable estimate of the standard deviation.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 19 , Issue 4 , December 1984 , pp. 403 - 412
Copyright
Copyright © School of Business Administration, University of Washington 1984

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

[1]Beckers, S. “Standard Deviations Implied in Option Prices and Predictors of Future Stock Price Variability,” Journal of Banking and Finance, Vol. 5 (09 1981), pp. 363–382.CrossRefGoogle Scholar
[2]Bhattacharya, M., and Rubinstein, M.. “Berkeley Options Data Base.” Mimeo, University of California, Berkeley (1978).Google Scholar
[3]Black, F., and Scholes, M.. “The Pricing of Options and Corporate Liabilities.” Journal of Political Economy, Vol. 81 (05–06 1973), pp. 637–659.CrossRefGoogle Scholar
[4]Black, F. “Fact and Fantasy in the Use of Options.” Financial Analysts Journal, Vol. 31 (07–08 1975), pp.36–72.CrossRefGoogle Scholar
[5]Black, F. “Studies of Stock Price Volatility Changes.” Proceedings of the American Statistical Association, (1976), pp. 177–181.Google Scholar
[6]Brenner, M., and Galai, D.. “The Properties of the Estimated Risk of Common Stocks Implied by Options Prices.” Working Paper, University of California, Berkeley (1981).Google Scholar
[7]Galai, D. “Tests of Market Efficiency of the Chicago Board Options Exchange.” Journal of Business, Vol 50 (04 1977), pp. 167–197.CrossRefGoogle Scholar
[8]Galai, D. “Empirical Test of Boundary Conditions for CBOE Options.” Journal of Financial Economics, Vol. 6 (04 1978), pp. 187–211.CrossRefGoogle Scholar
[9]Geske, R. “A Note on an Analytical Formula for Unprotected American Call Options on Stocks with Known Dividends.” Journal of Financial Economics, Vol. 7 (12 1979), pp. 375–380.CrossRefGoogle Scholar
[10]Latane, H.A., and Rendleman, R.J. Jr, “Standard Deviations of Stock Price Ratios Implied in Option Prices.” The Journal of Finance, Vol. 31 (05 1976), pp. 369–381.CrossRefGoogle Scholar
[11]Ortega, J.M., and Rheinholdt, W.C.. Iterative Solution of Nonlinear Equations in Several Variables. New York: Academic Press (1970).Google Scholar
[12]Patell, J.M., and Wolfson, M.A.. “The ExAnte and Ex Post Price Effects of Quarterly Earnings Announcements.” Journal of Accounting Research, Vol. 19 (1981).CrossRefGoogle Scholar
[13]Roll, R. “An Analytical Valuation Formula for Unprotected American Call Options on Stocks with Known Dividends.” Journal of Financial Economics, Vol. 5 (11 1977), pp. 251–258.CrossRefGoogle Scholar
[14]Schmalensee, R., and Trippi, R. R.. “Common Stock Volatility Expectations Implied by Option Premia.” Journal of Finance, Vol. 32 (03 1978), pp. 129–147.CrossRefGoogle Scholar
[15]Whaley, R.E. “On the Valuation of American Call Options on Stocks with Known Dividends.” Journal of Financial Economics, Vol. 9 (06 1981), pp. 207–211.CrossRefGoogle Scholar