The Impact of the Russo-Ukrainian War on the Risk and Return of TAIEX

Abstract

Abstract This study examines the impact of the Russia-Ukraine war (RUW) on the dynamic of TAIEX options' risk-return profile. Since the outbreak of the war on February 24, 2022, global economic sanctions have disrupted the world economy. Soaring energy and food prices and supply shortages have suppressed global economic growth, leading to rising inflation. Financial markets have reacted to the shocks caused by this war, thus intensifying the volatility of options markets. This study utilizes Hsu's (2013) option return models to investigate the impacts of how the war influences the TAIEX options' risk-return profile, including PDFs, profitability, and expected returns. The contributions of this paper are two-fold: It is the first paper on the (RUW) on the options markets; additionally, we demonstrate theoretically and empirically that the normality assumption of simple arithmetic returns is acceptable, making the Hsu's (2013) option return models more robust. The results indicate that the war has significantly affected and altered the PDFs of option returns, expected option returns, and volatility after the war. However, both theoretically and empirically shows that, despite the challenges posed by the war, put options trading during this period has been profitable. Keywords: Russo-Ukrainian War, TAIEX options, Option return model, Risk/Return Profile.