ScholarWorks@성균관대학교

초록

Truncation—the absence of deep out-of-the-money option price observations—exhibits significant underlying return predictive and forecasting power. Incorporating truncation into S&P500 spot return models improves both in-sample predictive accuracy and out-of-sample forecasting performance. The close relationship between truncation, underlying returns, and option-implied moments offers a potential explanation for its prediction capabilities. Truncation is not merely noise but contains valuable return-predictive information that may systematically influence the performance of implied moment estimates. © 2024 Elsevier Inc.

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