COVID-19 and Market Expectations : Evidence from Option-Implied Densities

We compare risk-neutral densities from equity index options across several markets during the early phase of the COVID-19 pandemic. These densities reflect market expectations regarding its economic impact. The markets reacted abruptly and simultaneously initially, but with a marked time lag after ignoring the first clear warning signs for several weeks. As the crisis unfolds, option prices increasingly reflect differences in anticipated impact on and economic resiliency of these markets