EXPORATION OF IMPLIED DISTRIBTUION KURTOSIS IN STOCK OPTION PRICES

摘要

This paper presents a better way of understanding an investment's risk by applying information from forward-looking options pricing data, specifically, the kurtosis of implied distribution compared to market volatility. First, pricing data in option chains for four exchange traded funds across varying time periods of up to five years are modeled as distributions. Second, the forward-looking monthly kurtosis values of these option chains are compared to the realized volatility of the same month using a correlation test. This methodology yields promising results. There exists a statistically significant negative correlation between implied distribution kurtosis and realized volatility at a 95% confidence level. The data is encouraging and further exploitation of implied distribution kurtosis could be beneficial in understanding risk and in hedging against periods of high volatility.