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On Measuring the Risk of Common Stocks Implied by Options Prices: A Note

Published online by Cambridge University Press:  06 April 2009

Menachem Brenner  and
Dan Galai
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Abstract

This paper examines the implied standard deviation (ISD) estimated from transactons data on options, using the Black-Scholes pricing model. It was found that the distribution of the ISD is symmetric, though not normal. Also, the ISD based on the last daily observation deviates significantly from the daily average ISD. It is suggested that the daily average is a more reliable estimate of the standard deviation.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 19 , Issue 4 , December 1984 , pp. 403 - 412
Copyright
Copyright © School of Business Administration, University of Washington 1984

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