Annals of Operations Research

, Volume 262, Issue 2, pp 463–491 | Cite as

Option implied ambiguity and its information content: Evidence from the subprime crisis

  • Tarik DriouchiEmail author
  • Lenos Trigeorgis
  • Raymond H. Y. So
S.I.: Financial Economics


This paper studies option investors’ tendency to deviate from risk-neutrality around extreme financial events. We incorporate ambiguity into Black–Scholes theory and analyze the lead–lag association between option and stock markets during 2006–2008. Our findings from the Standard and Poor’s 500 index options reveal that investors’ option implied ambiguity moderates the lead–lag relationship between implied and realized volatility. We find that implied ambiguity contains predictive realized volatility information (beyond constant and stochastic implied volatilities), and that implied volatility is a less biased predictor of realized market variance when accounting for ambiguity in option pricing. We are also able to track changing investors’ ambiguity perceptions (pessimism or optimism) prior to severe volatility events and document shifts in ambiguity aversion among put option holders in the period leading to the fall 2008 global market crash. Our results hold under multiple-priors and Choquet ambiguity specifications.


Choquet utility Multiple-priors Option implied ambiguity Implied volatility Realized volatility Uncertainty 





Black–Scholes risk-neutral implied volatility

BSIV \(\times \) IC

Interaction between BSIV and IC


Chicago board options exchange


Credit default swaps


Choquet expected utility


Option implied ambiguity


Ambiguity-adjusted implied volatility (BSIV \(\times \) IC)


Investors intelligence


Implied volatility

\(\hbox {IV}_{\mathrm{c}}\)

Ambiguity-based implied volatility


Multiple-priors expected utility




Out of the money


Realized volatility

\(\hbox {s} \times \hbox {BSIV}\)

Choquet-based implied volatility


S&P 500 index options


Stochastic volatility

\(\hbox {SV} \times \hbox {IC}\)

Interaction between SV and IC


CBOE implied volatility index



We thank the editors and the anonymous referees for their constructive comments and suggestions. Thanks are also due to Richard Arnott, Mark Clatworthy, Colin Clubb, Paul Guest, George Nishiotis, and Rafal Wojakowski for their helpful comments on earlier versions of this work. The author Lenos Trigeorgis is the Bank of Cyprus Chair Professor of Finance at the University of Cyprus.


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Copyright information

© Springer Science+Business Media New York 2015

Authors and Affiliations

  • Tarik Driouchi
    • 1
    Email author
  • Lenos Trigeorgis
    • 2
  • Raymond H. Y. So
    • 1
  1. 1.Department of Management, King’s College LondonUniversity of LondonLondonUK
  2. 2.Department of Accounting and FinanceUniversity of CyprusNicosiaCyprus

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