The Term Structure and S&P100 Model-Free Volatilities
We develop an improved method to obtain the model-free volatility more accurately despite the limitations of a finite number of options and large strike price intervals. Our method computes the model-free volatility from European-style S&P 100 index options over a horizon of up to 450 days, the...
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sg-smu-ink.lkcsb_research-46522014-02-04T11:37:58Z The Term Structure and S&P100 Model-Free Volatilities TING, Hian Ann, Christopher Lim, Kian Guan We develop an improved method to obtain the model-free volatility more accurately despite the limitations of a finite number of options and large strike price intervals. Our method computes the model-free volatility from European-style S&P 100 index options over a horizon of up to 450 days, the first time that this has been attempted, as far as we are aware. With the estimated daily term structure over the long horizon, we find that (i) changes in model-free volatilities are asymmetrically more positively impacted by a decrease in the index level than negatively impacted by an increase in the index level; (ii) the negative relationship between the daily change in model-free volatility and the daily change in index level is stronger in the near term than in the far term; and (iii) the slope of the term structure is positively associated with the index level, having a tendency to display a negative slope during bear markets and a positive slope during bull markets. These significant results have important implications for pricing and hedging index derivatives and portfolios. 2013-01-01T08:00:00Z text https://ink.library.smu.edu.sg/lkcsb_research/3653 info:doi/10.1080/14697688.2012.751493 Research Collection Lee Kong Chian School Of Business eng Institutional Knowledge at Singapore Management University Volatility modelling Empirical finance Options volatility Options Applied econometrics Finance and Financial Management |
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Volatility modelling Empirical finance Options volatility Options Applied econometrics Finance and Financial Management TING, Hian Ann, Christopher Lim, Kian Guan The Term Structure and S&P100 Model-Free Volatilities |
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We develop an improved method to obtain the model-free volatility more accurately despite the limitations of a finite number of options and large strike price intervals. Our method computes the model-free volatility from European-style S&P 100 index options over a horizon of up to 450 days, the first time that this has been attempted, as far as we are aware. With the estimated daily term structure over the long horizon, we find that (i) changes in model-free volatilities are asymmetrically more positively impacted by a decrease in the index level than negatively impacted by an increase in the index level; (ii) the negative relationship between the daily change in model-free volatility and the daily change in index level is stronger in the near term than in the far term; and (iii) the slope of the term structure is positively associated with the index level, having a tendency to display a negative slope during bear markets and a positive slope during bull markets. These significant results have important implications for pricing and hedging index derivatives and portfolios. |
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text |
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TING, Hian Ann, Christopher Lim, Kian Guan |
author_facet |
TING, Hian Ann, Christopher Lim, Kian Guan |
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TING, Hian Ann, Christopher |
title |
The Term Structure and S&P100 Model-Free Volatilities |
title_short |
The Term Structure and S&P100 Model-Free Volatilities |
title_full |
The Term Structure and S&P100 Model-Free Volatilities |
title_fullStr |
The Term Structure and S&P100 Model-Free Volatilities |
title_full_unstemmed |
The Term Structure and S&P100 Model-Free Volatilities |
title_sort |
term structure and s&p100 model-free volatilities |
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Institutional Knowledge at Singapore Management University |
publishDate |
2013 |
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https://ink.library.smu.edu.sg/lkcsb_research/3653 |
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