Exploring Implied Certainty Equivalent Rates in Financial Markets: Empirical Analysis and Application to the Electric Vehicle Industry

In this paper, we mainly study the impact of the implied certainty equivalent rate on investment in financial markets. First, we derived the mathematical expression of the implied certainty equivalent rate by using put-call parity, and then we selected some company stocks and options; we considered...

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Vydané v:Journal of risk and financial management Ročník 16; číslo 7; s. 344
Hlavní autori: He, Yifan, Rachev, Svetlozar
Médium: Journal Article
Jazyk:English
Vydavateľské údaje: Basel MDPI AG 01.07.2023
Predmet:
Automobile industry
Automobiles
Banking industry
Dividends
Electric vehicles
Financial markets
Investments
Parity
Securities industry
Securities markets
Stock options
Transportation equipment industry
United States
United States > US
ISSN:1911-8074, 1911-8066, 1911-8074
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Shrnutí:In this paper, we mainly study the impact of the implied certainty equivalent rate on investment in financial markets. First, we derived the mathematical expression of the implied certainty equivalent rate by using put-call parity, and then we selected some company stocks and options; we considered the best-performing and worst-performing company stocks and options from the beginning of 2023 to the present for empirical research. By visualizing the relationship between the time to maturity, moneyness, and implied certainty equivalent rate of these options, we have obtained a universal conclusion—a positive implied certainty equivalent rate is more suitable for investment than a negative implied certainty equivalent rate, but for a positive implied certainty equivalent rate, a larger value also means a higher investment risk. Next, we applied these results to the electric vehicle industry, and by comparing several well-known US electric vehicle production companies, we further strengthened our conclusions. Finally, we give a warning concerning risk, that is, investment in the financial market should not focus solely on the implied certainty equivalent rate, because investment is not an easy task, and many factors need to be considered, including some factors that are difficult to predict with models.
Bibliografia:ObjectType-Article-1
SourceType-Scholarly Journals-1
ObjectType-Feature-2
content type line 14
ISSN:1911-8074
1911-8066
1911-8074
DOI:10.3390/jrfm16070344