Earnings Announcements and Option Prices

64 Pages Posted: 5 Oct 2004

See all articles by Michael S. Johannes

Michael S. Johannes

Graduate School of Business, Columbia University

Andrew L. Dubinsky

Columbia University - Columbia Business School

Date Written: June 2005

Abstract

In this paper, we analyze the statistical and economic impact of earnings announcements on individual equity option prices. We develop no-arbitrage option pricing models in the presence of earnings announcements; we nonparametrically test for the importance of earnings announcements on option prices; we develop estimators of the primary parameter capturing the uncertainty present in earnings announcements, the earnings jump volatility; and we investigate the pricing implications of earnings announcements. We find strong evidence that uncertainty surrounding earnings plays a central role in determining option prices.

JEL Classification: M41, G12, G13

Suggested Citation

Johannes, Michael Slater and Dubinsky, Andrew L., Earnings Announcements and Option Prices (June 2005). Available at SSRN: https://ssrn.com/abstract=600593 or http://dx.doi.org/10.2139/ssrn.600593

Michael Slater Johannes (Contact Author)

Graduate School of Business, Columbia University ( email )

3022 Broadway
New York, NY 10027
United States

Andrew L. Dubinsky

Columbia University - Columbia Business School ( email )

3022 Broadway
New York, NY 10027
United States

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