We develop a two-state mixture model to describe Brent crude oil option-implied volatility surfaces. The model is estimated daily and allows the probability of each state to vary across option maturities. This provides a simple market-based measure of the expected duration of extreme conditions. Applied to the US-Iran conflict, implied duration rose from one month during the January 2026 protests, i.e., before the formal onset of hostilities, to approximately four months in mid-March 2026, declined temporarily following the April 8 ceasefire, and fell to below one month by the June 17 Islamabad memorandum.
- The option-implied duration of the US-Iran conflict
- T Bonafini - Free University of Bozen-BolzanoAlex Weissensteiner - Free University of Bozen-Bolzano
- Finance Research Letters, Vol.110, pp.1-8
- 1544-6123
- 1544-6131
- 110
- Elsevier
- 8
- (UNIBZ)99620578
991007424888001241 - WOS:001859606600001
- 2-s2.0-105050262813
- Faculty of Economics and Management
- English
- Journal article
- Bonafini T, Weissensteiner A