The option-implied Foster-Hart riskiness criterion

Matthias Leiss, ETH Zurich

Foster and Hart (2009) introduce an objective measure of the riskiness of an asset that implies a bound on how much of one’s wealth is `safe’ to invest in the asset while (a.s.) guaranteeing no-bankruptcy in the long run. In this work, we translate the Foster-Hart bound (FH bound) from abstract gambles to applied finance by analysis of risk-neutral densities (RNDs) that are non-parametrically estimated from S&P 500 call and put options prices. The option-implied FH bound is analyzed and assessed in light of well-known risk measures including value at risk, expected shortfall and volatility.

Location

London Mathematical Laboratory, 14 Buckingham Street, London, WC2N 6DF

Date & Time

Tuesday 27th May 2014 at 14.00hrs

Registration

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