The price of COVID-19-induced uncertainty in the options market

Jianhui Li*, Xinfeng Ruan, Jin E. Zhang

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

2 Citations (Scopus)
Plum Print visual indicator of research metrics
  • Citations
    • Citation Indexes: 2
  • Captures
    • Readers: 18
see details

Abstract

This paper investigates the pricing of uncertainty associated with the COVID-19 responses for 28 countries/regions in 2020. We find that such uncertainty is priced in the equity options market. Specifically, there is a price premium for options that provide protection to hedge against price risk, variance risk, and tail risk caused by a variety of World Health Organization (WHO) announcements and the lockdown announcements from governments on COVID-19. Moreover, such options tend to be more expensive when the governments place stricter restrictions.

Original languageEnglish
Article number110265
JournalEconomics Letters
Volume211
DOIs
Publication statusPublished - Feb 2022
Externally publishedYes

Keywords

  • COVID-19
  • Government response
  • Options market
  • Uncertainty

Fingerprint

Dive into the research topics of 'The price of COVID-19-induced uncertainty in the options market'. Together they form a unique fingerprint.

Cite this

Li, J., Ruan, X., & Zhang, J. E. (2022). The price of COVID-19-induced uncertainty in the options market. Economics Letters, 211, Article 110265. https://doi.org/10.1016/j.econlet.2021.110265