Authors: Alexandros Mystriotis, Andrianos Tsekrekos

Title: Option-implied Risk Aversion, Risk Neutral and Real World Densities of FTSE 100 During the Brexit Referendum Period

Abstract

Risk Neutral and Real world densities implied from option prices, provide us useful information about investors’ expectations regarding the future price evolution of the underlying asset. Using well-established methods from the relevant literature, we estimate implied probability density functions from FTSE 100 index options, and recover empirical estimates of investors’ risk aversion, for a period that starts with the announcement of the Brexit referendum date, to the days following the voting day. Our results indicate that densities become excessively negatively-skewed and leptokurtic as the Brexit referendum date approaches and that a dramatic change in the market perception of risk has taken place around the voting day.