CMStatistics 2017: Start Registration
View Submission - CFE
A1552
Title: Extracting latent states from high frequency option prices Authors:  Genevieve Gauthier - HEC Montreal (Canada) [presenting]
Jean-Francois Begin - Simon Fraser University (Canada)
Diego Amaya - Wilfrid Laurier (Canada)
Abstract: The aim is to propose the realized option variance as a new observable variable to integrate high frequency option prices in the inference of option pricing models. Using simulation and empirical studies, the incremental information offered by this realized measure is documented. Our empirical results show that the information contained in the realized option variance improves the inference of model variables such as the instantaneous variance and variance jumps of the S\&P 500 index. Parameter estimates indicate that the risk premium breakdown between jump and diffusive risks is affected by the omission of this information.