Inverting Option Pricing Formulas to Study Stock–Option Lead–Lag Effects

Summary

The document asks how to invert an options pricing formula associated with Roll’s compound formula to investigate lead–lag effects between stocks and options. The author has daily data for the NIFTY index and is trying to understand work attributed to Roll and Matthew, but provides no formula, derivation, or explanation of the inversion method.

Its useful context is the research question: option pricing relationships may be rearranged to examine how information or price movements relate across an underlying index and its options. The author notes a data-frequency limitation, since their observations are daily rather than intraday. The document does not specify the dataset, model assumptions, variables, or empirical findings, so it cannot establish how to perform the inversion or whether daily data can reveal the effects of interest.

Key ideas

• The author wants to use an option pricing relationship to study lead–lag effects between an index and its options.
• The question refers to Roll’s compound formula but does not provide the formula or describe its inversion.
• The available NIFTY observations are daily rather than intraday.
• No derivation, empirical result, or guidance on data requirements is included.

Tags

# Options pricing model inversion


# Options pricing model inversion












He cited about Roll's compound formula for finding the lead-lag effects between stocks and options. I have a similar data for National Stock Exchange's Index, NIFTY but it's daily, not intra-day. I could not understand what Roll, and Matthew did. If anyone could explain the inversion of this pricing formula, it'd be a huge help.

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