| Article ID | Journal | Published Year | Pages | File Type |
|---|---|---|---|---|
| 958591 | Journal of Empirical Finance | 2010 | 13 Pages |
Abstract
We develop a dynamic framework to identify aggregate market fears ahead of a major market crash through the skewness premium of European options. Our methodology is based on measuring the distribution of a skewness premium through a q-Gaussian density and a maximum entropy principle. Our findings indicate that the October 19th, 1987 crash was predictable from the study of the skewness premium of deepest out-of-the-money options about two months prior to the crash.
Related Topics
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Economics and Econometrics
Authors
Ramazan Gençay, Nikola Gradojevic,