A1051
Title: Implied event risk from option prices
Authors: Johan Walden - UC Berkeley, Haas School of Business (United States) [presenting]
Richard Stanton - UC Berkeley (United States)
Eben Lazarus - UC Berkeley (United States)
Abstract: A nonparametric method is introduced for inferring risk distributions of anticipated events of publicly traded firms, such as earnings announcements, securities litigation events, and the resolution of takeover bids and proxy fights. The method is applied to a sample of specific events, including earnings announcements, product launches, and FOMC announcements, and it is shown how well-known characteristics of asset prices before such events, e.g., concave implied volatility curves, are explained by anticipated event risk. The method provides new insight on the effect of anticipated event risk on asset prices, how to measure such risk, and --- more specifically --- a fruitful way of adjusting option prices to account for such risk close to maturity dates.
