Option-implied belief dispersion and economic uncertainty: Evidence from the Brazilian oil market

This paper develops a novel model-free framework to measure economic uncertainty using option-implied belief dispersion. I introduce Implicit Underlying Values (IUVs), derived from option prices, to quantify heterogeneous investor expectations without parametric assumptions. The resulting forward-looking uncertainty metric is scale-invariant and captures tail risks through complementary downside (DSR) and upside (USR) risk measures. Applied to options traded in the Brazilian financial market relating to the oil sector, the index accurately pinpoints crises, including the 2008 financial crisis, Brazil’s 2015-16 recession, and the COVID-19 pandemic. Unlike traditional volatility indices, this approach disentangles belief dispersion from price movements while incorporating all option types, yielding a more comprehensive uncertainty measure. • Extracts Implicit Underlying Values (IUVs) from option prices to quantify investor belief dispersion. • Proposes a novel model-free framework for measuring economic uncertainty using option-implied beliefs. • Delivers a scale-invariant uncertainty metric that isolates belief dispersion from price effects. • Develops asymmetric tail-risk measures (DSR/USR) to assess downside and upside probabilities. • Empirically validates the framework by identifying crises in the Brazilian market (2006-2023).