Risk-Neutral Skewness : Evidence from Stock Options

@inproceedings{Dennis2007RiskNeutralS,
  title={Risk-Neutral Skewness : Evidence from Stock Options},
  author={Patrick P. Dennis and Stewart Mayhew},
  year={2007}
}
We investigate the relative importance of various factors in explaining the volatility skew observed in the prices of stock options traded on the Chicago Board Options Exchange. The skewness of the risk-neutral density implied by individual stock option prices tends to be more negative for stocks that have larger betas, suggesting that market risk is important in pricing individual stock options. Also, implied skewness tends to be more negative in periods of high market volatility, and when the… CONTINUE READING
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