@techreport{71bbda6a381e4cc5a2f287c25679d96b,
title = "Time-varying Crash Risk Embedded in Index Options: The Role of Stock Market Liquidity",
abstract = "We estimate a continuous-time model with dynamic crash probability using the S&P500 index options and high-frequency information. We find that market illiquidity is an important factor in explaining the time-varying stock market crash risk embedded in index options. While market illiquidity and return volatility play complementary roles in explaining the time-varying crash risk, the relative contribution of the volatility factor is weakened once we include market illiquidity as an economic variable. Examining the link between market illiquidity and option-implied crash risk, we find that the availability of arbitrage capital and adverse selection facing liquidity providers are economic driving forces.",
keywords = "Market liquidity, Crash risk, Jump intensity, Options, Filtering, Market liquidity, Crash risk, Jump intensity, Options, Filtering",
author = "Peter Christoffersen and Bruno Feunoua and Yoontae Jeon and Chayawat Ornthanalai",
year = "2018",
month = jul,
day = "24",
doi = "10.2139/ssrn.2797308",
language = "English",
series = "Rotman School of Management Working Paper",
publisher = "Rotman School of Management, University of Toronto",
number = "2797308",
address = "Canada",
type = "WorkingPaper",
institution = "Rotman School of Management, University of Toronto",
}