We use risk-neutral densities to measure market expectations regarding COVID-19.
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Markets reacted late after ignoring several warnings by the World Health Organization.
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Stock indices reacted strongly and simultaneously after the Lombardy lockdown.
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From mid-March onwards, risk-neutral densities develop differently across countries.
Abstract
We compare risk-neutral densities from equity index options across several countries during the early phase of the COVID-19 pandemic. The initial reaction in all analyzed markets was late, abrupt and simultaneous. Only a few weeks later, densities started to differ across markets.