Investment disputes and their explicit role in option market uncertainty and overall risk instability

Zdenek Drabek, Miloš Kopa (), Matúš Maciak (), Michal Pešta () and Sebastiano Vitali ()
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Miloš Kopa: Charles University
Matúš Maciak: Charles University
Michal Pešta: Charles University
Sebastiano Vitali: University of Bergamo

Computational Management Science, 2023, vol. 20, issue 1, No 15, 25 pages

Abstract: Abstract We propose a methodological approach for capturing and analyzing the impacts of investment disputes on option markets. A dispute submission typically brings in unspecified uncertainty and additional risk. The implied volatility of options is shown to reflect such effects. However, nontrivial caution and nonstandard statistical techniques are needed to analyze them appropriately. Artificial options with a constant (over time) maturity are introduced to emphasize these effects. A panel data representation of artificial implied volatility smiles is used to ensure the overall model flexibility, transparency, and its practical interpretability. Finally, a stochastically valid changepoint detection procedure is adopted to reveal significant impacts of an investment dispute on the overall riskiness and the stock price evolution. The results show significant impacts of the first tribunal meeting and the first procedural order of the disputes under consideration.

Keywords: Implied volatility; Investment disputes; Artificial options; Panel data; Sparsity; Changepoint detection (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1007/s10287-023-00447-1

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