What can you Really Tell from Option Prices?

Oleg Bondarenko, Yannick Dillschneider, Paul Schneider and Fabio Trojani
Additional contact information
Oleg Bondarenko: University of Illinois Chicago
Yannick Dillschneider: University of Amsterdam - Amsterdam School of Economics (ASE); Tinbergen Institute
Paul Schneider: University of Lugano - Institute of Finance; Swiss Finance Institute
Fabio Trojani: University of Geneva; University of Turin - Department of Statistics and Applied Mathematics; Swiss Finance Institute

No 26-49, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: Option-implied risk-neutral moments are widely used in empirical finance to measure moment risk premia, derive bounds on expected returns, and serve as inputs for models of conditional physical moments. Their identification, however, implicitly relies on the assumption of complete option markets. We develop novel model-free bounds that characterize the valuation uncertainty that an observed option crosssection leaves about a given risk-neutral moment under market incompleteness. For the VIX, as well as for essentially all standard measures of variance, skewness, and kurtosis, this uncertainty is unbounded. Consequently, predictive regressions and cyclicality tests based on these quantities can generate almost arbitrary parameter estimates, rendering their empirical conclusions largely uninformative. As a remedy, we introduce a family of robust risk-neutral moments whose valuation uncertainty remains bounded and empirically small, while integrating into existing empirical frameworks with only minimal modification.

Pages: 135 pages
Date: 2026-06
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