Option Pricing of Earnings Announcement Risks

Norman Johannes Seeger, Andreas Kaeck, Michael Johannes

Research output: Contribution to journalArticle

Abstract

This paper uses option prices to learn about the equity price uncertainty surrounding information released on earnings announcement dates. To do this, we introduce reduced-form models and estimators to separate price uncertainty about earnings announcements from normal day-to-day volatility. Empirically, we find strong support for the importance of earnings announcements. We find that the anticipated price uncertainty is quantitatively large, varies across time, and is informative about the future return volatility. Finally, we quantify the impact of earnings announcements on formal option pricing models.
LanguageEnglish
Number of pages82
JournalReview of Financial Studies
StateAccepted/In press - 2018

Fingerprint

Earnings announcements
Option pricing
Price uncertainty
Estimator
Option pricing model
Option prices
Return volatility
Equity prices
Reduced-form model

Keywords

  • Earnings announcements
  • anticipated uncertainty
  • equity options
  • implied volatility

Cite this

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title = "Option Pricing of Earnings Announcement Risks",
abstract = "This paper uses option prices to learn about the equity price uncertainty surrounding information released on earnings announcement dates. To do this, we introduce reduced-form models and estimators to separate price uncertainty about earnings announcements from normal day-to-day volatility. Empirically, we find strong support for the importance of earnings announcements. We find that the anticipated price uncertainty is quantitatively large, varies across time, and is informative about the future return volatility. Finally, we quantify the impact of earnings announcements on formal option pricing models.",
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Option Pricing of Earnings Announcement Risks. / Seeger, Norman Johannes; Kaeck, Andreas; Johannes, Michael.

In: Review of Financial Studies, 2018.

Research output: Contribution to journalArticle

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