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Domain Stabilization for Model-Free Option Implied Moment Estimation

Geul Lee et al.

Journal of Financial Econometrics2025https://doi.org/10.1093/jjfinec/nbae037article
AJG 3ABDC A*
Weight
0.44

Abstract

We propose a new method, domain stabilization (DStab), to enhance the return predictive and forecasting ability of model-free option-implied moment estimators. Analyzing S&P 500 options data from January 2015 to December 2021, we show that DStab improves moment estimation consistency by stabilizing the integration domain, leading to better predictive and forecasting performance. When the options data characteristics are appropriately considered, DStab enhances both in-sample predictive and out-of-sample forecasting abilities of implied moments. DStab’s out-of-sample forecasting ability surpasses other treatment methods.

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https://doi.org/https://doi.org/10.1093/jjfinec/nbae037

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@article{geul2025,
  title        = {{Domain Stabilization for Model-Free Option Implied Moment Estimation}},
  author       = {Geul Lee et al.},
  journal      = {Journal of Financial Econometrics},
  year         = {2025},
  doi          = {https://doi.org/https://doi.org/10.1093/jjfinec/nbae037},
}

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Domain Stabilization for Model-Free Option Implied Moment Estimation

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Evidence weight

0.44

Balanced mode · F 0.40 / M 0.15 / V 0.05 / R 0.40

F · citation impact0.32 × 0.4 = 0.13
M · momentum0.57 × 0.15 = 0.09
V · venue signal0.50 × 0.05 = 0.03
R · text relevance †0.50 × 0.4 = 0.20

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