This is a Python implementation of a set of option-implied characteristics.
The package contains functions to compute option-implied moments and characteristics from implied volatility surface data. The computations are based on the out-the-money (OTM) implied volatilities, interpolated as function of moneyness (Strike/Underlying Price or Strike/ Forward Price) within the avaialable moneyness range and set to the boundary values outside to fill in the pre-specified moneyness range. OTM is defined as moenyess>=1 for calls and <1 for puts.
The following moments and characteristics are computed:
- Model-free implied variance (log contract):
MFIV_BKMusing Bakshi, Kapadia, and Madan (RFS, 2003) / https://doi.org/10.1093/rfs/16.1.0101MFIV_BJNusing Britten-Jones and Neuberger (JF, 2002) / https://doi.org/10.1111/0022-1082.00228
- Simple model-free implied variance
SMFIVusing Martin (QJE, 2017) / https://doi.org/10.1093/qje/qjw034
- Corridor VIX
CVIXusing Andersen, Bondarenko, and Gonzalez-Perez (RFS, 2015) / https://doi.org/10.1093/rfs/hhv033
- Tail Loss Measure
TLMusing Vilkov, Xiao (2012) / https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1940117 and Hamidieh (Journal of Risk, 2017) / https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2209654
- Semivariances (only down) for log and simple contracts
- Following Feunou, Jahan-Parvar,and Okou, (Journal of Fin Econometrics, 2017) / https://doi.org/10.1093/jjfinec/nbx020
- Up semivariances can be computed as the respective total variance minus down semivariance
- Tail jump measure
RIXusing Gao, Gao and Song, (RFS, 2018) / https://doi.org/10.1093/rfs/hhy027
- Ad hoc tail measures (smile steepness for the tails)
Slopeup(right tail) andSlopedn(left tail) measure right and left tail slope, respectively. Larger values indicate more expensive tail relative to the at-the-money level.- Used in Carbon Tail Risk, Ilhan, Sautner, and Vilkov, (RFS, 2021) / https://doi.org/10.1093/rfs/hhaa071 and Pricing Climate Change Exposure, v.Lent, Sautner, Zhang, and Vilkov, (Management Science, 2023) / https://doi.org/10.1287/mnsc.2023.4686 (mind the sign of slopeup -- we take '-Slope' here for better interpretability). Originally, Slopedn is used in Kelly, Pastor, Veronesi (JF, 2016) / https://doi.org/10.1111/jofi.12406
- Generalized Lower Bounds on expected returns
GLBusing Chabi-Yo, Dim, and Vilkov (Management Science, 2023) / https://ssrn.com/abstract=3565130- Requires historical return data in addition to the implied volatility surface
Exemplary use of the qmoms package. The data is provided with the package, and are composed of three files:
surface.csv: the implied volatility surface as a function of option delta for several dates and 30/60/91-day maturities. The columns mapping is specified inqmoms_params.pyand can be imported from the main package:
from qmoms import default_surf_dtype_mapping
default_surf_dtype_mapping = {'id': 'int64',
'date': 'str',
'days': 'int64',
'mnes': 'float64',
'impl_volatility': 'float64',
'delta': 'float64'}zerocd.csv: the zero CD rates recorded on each date for several maturities, in % p.a.
from qmoms import default_rate_dtype_mapping
default_rate_dtype_mapping = {'date': 'str',
'days': 'int64',
'rate': 'float64'}returns.csv: daily returns for several assets, the market factor (mktrf), and the risk-free rate (rf).
The default date format for these files is provided in qmoms_params.py: default_date_format = '%Y-%m-%d'
To load the data, use the provided function load_data()
from qmoms.examples import load_data
df_surf, df_rate, df_return = load_data()There are two main functions provided: qmoms_compute() and qmoms_compute_bygroup():
The first function computes a set of variables as specified in params dictionary for one instance of the surface
(i.e., one id/date/days combination).
def qmoms_compute(mnes, vol, days, rate, params, output='pandas'):
"""
Computes implied moments for option pricing using interpolated volatility and various moment formulas.
Parameters:
- mnes (array-like): moneyness (K/S) of the options.
- vol (array-like): implied volatilities corresponding to the moneyness.
- days (int): Days until the options' expiration.
- rate (float): Risk-free interest rate.
- params (dict): Configuration parameters containing grid settings and other options.
- output (str): Specifies the output format ('pandas' for a pandas.Series, else returns a dictionary).
Returns:
- pandas.Series or dict: Calculated moments and optionally other metrics based on the provided parameters.
The function performs the following:
- Sorts inputs by moneyness.
- Computes forward prices and interpolation of implied volatilities.
- Uses Black or Black-Scholes formulas to compute option prices.
- Calculates implied variances and semi-variances using specified methods.
- Optionally computes advanced metrics like MFIS/MFIK, Corridor VIX, RIX, Tail Loss Measure,
and Slopes based on user configurations in `params`.
#######################################################################################################
default_params = {'atmfwd': False, # if True, use FWD as ATM level and Black model for option valuation
'grid': {'number_points': 500, # points*2 + 1
'grid_limit': 2}, # 1/(1+k) to 1+k; typically, k = 2
'filter': {'mnes_lim': [0, 1000], # [0.7, 1.3],
'delta_put_lim': [-0.5 + 1e-3, 0], # typically, only OTM
'delta_call_lim': [0, 0.5], # typically, only OTM
'best_bid_zero': -1, # if negative, no restriction on zero bid;
'open_int_zero': -1, # if negative, no restriction on zero open interest;
'min_price': 0}, # a limit on the min mid-price
'semivars': {'compute': True}, # save semivariances or not, they are computed anyway
'mfismfik': {'compute': True}, # compute skewness/ kurtosis
'cvix': {'compute': True, # compute corridor VIX
'abs_dev': [0.2], # absolute deviation from ATM level of 1
'vol_dev': [2]}, # deviation in terms of own sigmas from ATM level of 1
'rix': {'compute': True}, # compute RIX (Gao,Gao,Song RFS) or not,
'tlm': {'compute': True, # compute Tail Loss Measure (Xiao/ Vilkov) or not
'delta_lim': [20], # OTM put delta for the threshold (pos->neg or neg)
'vol_lim': [2]}, # deviation to the left in terms of sigmas from ATM level of 1
'slope': {'compute': True,
'deltaP_lim': [-0.5, -0.05],
# limits to compute the slopedn as Slope from IV = const + Slope * Delta
'deltaC_lim': [0.05, 0.5]
# limits to compute the slopeup as -Slope from IV = const + Slope * Delta
}
}
#######################################################################################################
To modify parameters, update the default_params dictionary with the dictionary with desired parameters
for example, in case you do not want to compute the tlm, and want to change slope parameters, use
new_params0 = {'tlm': {'compute': False}}
new_params1 = {'slope': {'compute': True,
'deltaP_lim': [-0.4, -0.1],
# limits to compute the slopedn as Slope from IV = const + Slope * Delta
'deltaC_lim': [0.05, 0.5]
# limits to compute the slopeup as -Slope from IV = const + Slope * Delta
}}
params = default_params | new_params0 | new_params1
#######################################################################################################
"""The second function qmoms_compute_bygroup computes the variables for a set of instances collected in a DataFrame.
Note that the input variable groupparams shall be a tuple or a list with the 0th element containing the
group (dataframe) and the 1st element being a dictionary with parameters. Asset id, current date,
maturity in days, and current rate in decimals p.a. can be provided as individual variables, or in the
group DataFrame. If these variables are provided directly to the function, they will take precedence over any values
provided within the DataFrame.
The DataFrame column names shall conform to the cols_map mapping.
def qmoms_compute_bygroup(groupparams,
id=None, rate=None, days=None, date=None,
cols_map={'id': 'id',
'date': 'date',
'days': 'days',
'rate': 'rate',
'mnes': 'mnes',
'impl_volatility': 'impl_volatility'}):
"""
Computes implied moments for grouped option data using specified parameters and column mappings.
Parameters:
- groupparams (tuple, list, or dict): If a tuple or list, this should contain the group data and parameters as the
first and second elements, respectively. If a dict, it is used directly as parameters.
- id (int, optional): Identifier for the data group, defaults to the first 'id' in the group data as specified in
cols_map if not provided.
- rate (float, optional): Risk-free interest rate, defaults to the first 'rate' in the group data as specified in
cols_map if not provided.
- days (int, optional): Days until expiration, defaults to the first 'days' in the group data as specified in cols_
map if not provided.
- date (any, optional): Date of the data, defaults to the first 'date' in the group data as specified in cols_map
if not provided.
- cols_map (dict, optional): A dictionary mapping the expected columns in the group data to the actual column names.
Default is {'id': 'id', 'date': 'date', 'days': 'days', 'rate': 'rate',
'mnes': 'mnes', 'impl_volatility': 'impl_volatility'}.
Returns:
- pandas.Series: Contains the computed moments along with initial group identifiers such as id, date, and days.
The function sorts the group data by moneyness, removes duplicates, and computes moments using interpolation.
It then merges the computed moments with initial data identifiers and returns a pandas Series, using the column
mappings specified in cols_map for accessing data fields.
"""The usage of both functions is illustrated below. There are examples of both serial and parallel execution. Note that
the parallel execution may produce errors in the interactive mode; in that case, one needs to Run the whole script.
'''the script with examples is provided in qmoms/examples/qmoms_test.py'''
import pandas as pd
from qmoms.examples import load_data
from qmoms import default_params, default_surf_dtype_mapping, filter_options, get_rate_for_maturity
from qmoms import qmoms_compute, qmoms_compute_bygroup
if __name__ == '__main__':
# load the provided data
df_surf, df_rate, df_return = load_data()
# select only relevant columns and order them
df_surf = df_surf[default_surf_dtype_mapping.keys()]
# Filter the whole dataset
df_surf = filter_options(df_surf, default_params['filter'])
# GROUP THE DATA FOR COMPUTATIONS, AND TEST THE OUTPUT ON ONE GROUP
df_surf_grouped = df_surf.groupby(['id', 'date', 'days'], group_keys=False)
ids, group_now = next(iter(df_surf_grouped))
id, date, days = ids
mnes = group_now.mnes
iv = group_now.impl_volatility
rate = get_rate_for_maturity(df_rate, date=date, days=days)
qout = qmoms_compute(mnes=mnes, vol=iv, days=days, rate=rate, params=default_params)
print(qout)
# SERIAL COMPUTATION OVER ALL GROUPS
df_surf = get_rate_for_maturity(df_rate, df_surf=df_surf)
grouped = df_surf.groupby(['id', 'date', 'days'], group_keys=False)
ret_list = [qmoms_compute_bygroup([g, default_params]) for _, g in grouped]
out_s = pd.DataFrame.from_records(ret_list)
print(out_s)Sample output for one group (id=12490, date=2023-01-03, days=30):
nopt 17.000000
smfiv 0.093976
mfiv_bkm 0.097201
mfiv_bjn 0.095837
smfivd 0.046491
mfivd_bkm 0.055252
mfivd_bjn 0.052134
mfis -0.531184
mfik 3.565793
cvix_sigma2 0.095381
cvix_mnes20 0.096203
rix 0.003118
rixnorm 0.056425
tlm_sigma2 35.497808
tlm_delta20 34.314357
slopedn 0.171740
slopeup -0.052627
Summary statistics over all 3,750 groups (5 assets, daily, 30/60/91-day maturities):
smfiv mfiv_bkm mfiv_bjn mfis mfik rix slopedn slopeup
count 3750.000 3750.0000 3750.0000 3750.00 3750.00 3750.00 3750.00 3750.000
mean 0.120 0.1245 0.1212 -0.64 4.23 0.008 0.260 0.026
std 0.120 0.1236 0.1189 0.25 0.69 0.013 0.069 0.080
min 0.020 0.0201 0.0201 -2.20 3.11 0.000 0.077 -0.121
25% 0.053 0.0548 0.0539 -0.81 3.78 0.002 0.219 -0.029
50% 0.072 0.0754 0.0739 -0.67 4.14 0.003 0.255 0.010
75% 0.106 0.1138 0.1106 -0.48 4.51 0.006 0.291 0.063
max 0.799 0.8678 0.8237 0.38 11.07 0.112 0.985 0.636
The GLB procedure computes lower bounds on expected stock returns using option-implied moments and historical return data, following Chabi-Yo, Dim, and Vilkov (Management Science, 2023).
from qmoms import compute_glb_betas, prepare_integration_inputs_surf, compute_glb
# compute rolling betas from return data
beta_df = compute_glb_betas(df_return, parallel=False)
# prepare integration inputs from the IV surface (for one group)
inputs = prepare_integration_inputs_surf(mnes, vol, days, rate, default_params)
# assemble betas coefficient vector: [Bmj,...,Bmj2j, gamma, rho, kappa, er]
betas_sel = ['Bmj', 'Bm2j', 'Bj2j', 'Bmjj', 'Bm3j', 'Bj3j', 'Bm2jj', 'Bmj2j']
gm, rho, kp = 2, 1, 4
betas_coef = list(beta_row[betas_sel].values) + [gm, rho, kp, inputs['er']]
# compute GLB
result = compute_glb(inputs['er'], inputs['ki'], inputs['dKi'],
inputs['Q'], inputs['mat'], betas_coef)Sample GLB output (id=12490, gamma=2, rho=1, kappa=4):
theta_GLB_TS3 = 0.980207
GLB_TS3 = 0.091838
theta_GLB_TS2 = 0.977650
GLB_TS2 = 0.091603
The GLB values are annualized lower bounds on expected excess returns.
TS2 and TS3 refer to 2nd and 3rd order Taylor series expansions used to determine the feasible theta range.
See qmoms/examples/qmoms_glb_test.py for a complete working example.
The package can be installed from PyPI (recommended) or from GitHub. Example data (surface.csv, zerocd.csv, returns.csv) is included in the package with either installation method.
From PyPI:
pip install qmomsFrom GitHub (latest development version):
pip install git+https://github.com/vilkovgr/qmoms.git- Python 3.10+
- numpy>=1.24
- pandas>=2.0
- scipy>=1.10
- sympy>=1.12
- tqdm>=4.0
Run the test suite with:
python -m pytest tests/ -vPrecomputed moments and other data are available through the OSF repository at https://osf.io/8awyu/
Feel free to load and use in your projects:
- Generalized lower bounds as in Chabi-Yo, Dim, Vilkov (MS, 2023) / https://ssrn.com/abstract=3565130
- Option-implied betas as in Buss and Vilkov (RFS, 2012) / https://ssrn.com/abstract=1301437
- Options-implied correlations as in Driessen, Maenhout, Vilkov (JF, 2009) / https://ssrn.com/abstract=2166829
- Climate change exposure measures as in Lent, Sautner, Zhang, and Vilkov (JF, MS, 2023) / https://ssrn.com/abstract=3792366 and https://ssrn.com/abstract=3642508
The implementation is inspired by the Python and MATLAB code for implied moments made available on Grigory Vilkov's website.
The package is still in the development phase, hence please share your comments and suggestions with us.
Contributions welcome!
Grigory Vilkov