The Impact of Loss Aversion and Market Sentiment on Implied Volatility Skews.
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Disciplina/sAdministración y Dirección de Empresas
Materia/sEstudio de Mercados
The thesis “The Impact of Loss Aversion and Investor Sentiment on Implied Volatility Skews” examines how market participants’ behaviour influences the pricing of equity options. Option Pricing has historically been a purely neoclassical topic, however, articles which link option pricing to behavioural finance are becoming increasingly popular. More specifically implied volatility skews, representing a pricing anomaly with regards to the theoretical, neoclassical assumptions of most option pricing models, are in the center of the research. A first relation to behavioural aspects can be concluded by the fact that implied volatility skews have been observed as a standard pattern since the 1987 US stock market crash. The standard argumentation to explain this anomaly is mainly based on shortfalls of the neoclassical assumptions within the standard option pricing models. Non-normal distribution functions, leverage effects and non-continuous trading markets which follow a jump diffusion pr...