Option prices and model-free measurement of implied herd behavior in stock markets

Daniël Linders, Jan Dhaene and Wim Schoutens

No 485228, Working Papers Department of Accountancy, Finance and Insurance (AFI), Leuven from KU Leuven, Faculty of Economics and Business (FEB), Department of Accountancy, Finance and Insurance (AFI), Leuven

Abstract: In this paper, we introduce two classes of indices which can be used to measure the market perception concerning the degree of dependency that exists between a set of random variables, representing different stock prices at a fi xed future date. The construction of these measures is based on the theory of comonotonicity. Both types of herd behavior indices are model-free and risk-neutral, derived from available option data. Depending on its particular de finition, each index represents a particular aspect of the market sentiment concerning future co-movement of the underlying stock prices.

Keywords: comonocity; herd behavior; HIX; index options; market fear; model-free measures; VIX (search for similar items in EconPapers)
Date: 2015
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Published in FEB Research Report AFI_1597

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Persistent link: https://EconPapers.repec.org/RePEc:ete:afiper:485228

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