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Predictive Option Pricing as a Sectoral Measure of Trust Assessment

Gaviño Nava, Edson

(2023)

Details

Supervisors

Panin, Amma ; Lassance, Nathan

Faculty

Faculté des sciences économiques, sociales, politiques et de communication

Degree label

Master [120] en sciences économiques, orientation économétrie, à finalité approfondie

Abstract

Over the past decade, there has been a notable surge of interest in the realm of secure financial investments with high potential for profit within contemporary economic literature. Conversely, the inclusion of trust as a sociological construct presents a complex augmentation to economic and financial models, particularly when regarded as a determinant of investment behaviors. The primary objective of this exploratory study is to bridge the existing gap regarding the potential presence of investors’ trust in diverse economic sectors and their propensity for engaging in risky investments at a specific point in time, specifically in contradiction to the recommendations provided by modern predictive software. A novel approach for measuring sectoral trust is proposed, using the advice of computational software based on two versions of the Black-Scholes Model for option pricing, and proxying trust by assessing the difference between the prices suggested by the model against the actual market prices of options for 117 companies across 5 economic sectors and 6 market caps, and relating the registered differences in prices with the trade volumes for each industry. The findings of this study show that, indeed, trust can be measured across economic sectors at specific points in time, yielding a measure that provides insight regarding investor trading trends and sentiment depending on the type and size of the assessed industries.