On estimating an asset's implicit beta

Sven Husmann and Andreas Stephan

Journal of Futures Markets, 2007, vol. 27, issue 10, 961-979

Abstract: A.F. Siegel (1995) has developed a technique with which the systematic risk of a security (beta) can be estimated without recourse to historical capital market data. Instead, beta is estimated implicity from the current market prices of exchange options that enable the exchange of a security against shares on the market index. Because this type of exchange options is not currently traded on the capital markets, Siegel's technique cannot yet be used in practice. This study will show that beta can also be estimated implicitly from the current market prices of plain vanilla options, based on the capital asset pricing model. Empirical evidence on implicit betas is provided using prices of exchange options from the European Derivatives Exchange Market (EUREX) over years 2000 to 2004. © 2007 Wiley Periodicals, Inc. Jrl Fut Mark 27:961–979, 2007

Date: 2007
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