Abstract
The covariation of option-implied disaster concern of a stock and the market index allows me to estimate the conditional and systematic disaster concern of the stock with respect to the market. The estimated variables can be interpreted in terms of the stock's risk-neutral conditional disaster probabilities given possible future market states, and they strongly predict future realizations of stock disasters and returns under different market conditions. This suggests that the comovement of option prices between stocks and the market index carries forward-looking information on their joint tail distributions.
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