Local Political Risk Revealed in Options Prices

Student: Bulkova Maria

Supervisor: Sergey Victorovich Gelman

Faculty: International College of Economics and Finance

Educational Programme: Double degree programme in Economics of the NRU HSE and the University of London (Bachelor)

Year of Graduation: 2017

Our empirical analysis is aimed to determine the effect of local political uncertainty in the U.S. on equity options prices. Using data for 805 companies and 20 years we find that gubernatorial elections are not significant in implied volatility jumps, while House of Representatives and presidential elections appear to be significant. We also include market returns and unemployment rate variables for investigating whether factors other than political could have greater influence on increased volatilities around dates of interest. These variables appear to be also significant.

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