The Option-Implied Foster-Hart Riskiness Criterion

Early Career Researcher Seminar

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.





Matthias Leiss (ETH Zurich, Risk Center)

Wednesday, May 28, 2014 - 12:30
to 13:30