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Option implied ambiguity and its information content: Evidence from the subprime crisis

Driouchi, Tarik; Trigeorgis, Lenos; So, Raymond H.Y.


Tarik Driouchi

Raymond H.Y. So


This paper studies option investors’ tendency to deviate from risk-neutrality around extreme financial events. We incorporate ambiguity into Black–Scholes theory and analyze the lead–lag association between option and stock markets during 2006–2008. Our findings from the Standard and Poor’s 500 index options reveal that investors’ option implied ambiguity moderates the lead–lag relationship between implied and realized volatility. We find that implied ambiguity contains predictive realized volatility information (beyond constant and stochastic implied volatilities), and that implied volatility is a less biased predictor of realized market variance when accounting for ambiguity in option pricing. We are also able to track changing investors’ ambiguity perceptions (pessimism or optimism) prior to severe volatility events and document shifts in ambiguity aversion among put option holders in the period leading to the fall 2008 global market crash. Our results hold under multiple-priors and Choquet ambiguity specifications.


Driouchi, T., Trigeorgis, L., & So, R. H. (2018). Option implied ambiguity and its information content: Evidence from the subprime crisis. Annals of Operations Research, 262(2), 463-491.

Journal Article Type Article
Online Publication Date Dec 19, 2015
Publication Date 2018-03
Deposit Date Feb 14, 2023
Journal Annals of Operations Research
Print ISSN 0254-5330
Electronic ISSN 1572-9338
Publisher Springer
Volume 262
Issue 2
Pages 463-491
Public URL