The Price of Covid-19-Induced Uncertainty in the Options Market

Using three option market measures, we find evidence from 28 countries/regions that the COVID-19-induced uncertainty is priced in the index exchange-traded funds (ETF) options market. Specifically, options that provide protection to hedge against price risk, variance risk, and tail risk following the World Health Organization (WHO) announcements related to COVID-19 are more valuable. Moreover, option protection against such risk tend to be more expensive when the governments place stricter COVID-19 restrictions