A simple expected volatility (SEV) index: Application to SET50 index options

In 2003, the Chicago Board Options Exchange (CBOE) made two key enhancements to the volatility index (VIX) methodology based on S&P options. The new VIX methodology seems to be based on a complicated formula to calculate expected volatility. In this paper, with the use of Thailand's SET50 I...

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Main Authors:	Michael McAleer, Chatayan Wiphatthanananthakul
Format:	Journal
Published:	2018
Subjects:	Computer Science Mathematics
Online Access:	https://www.scopus.com/inward/record.uri?partnerID=HzOxMe3b&scp=77953324993&origin=inward http://cmuir.cmu.ac.th/jspui/handle/6653943832/50727
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Institution:	Chiang Mai University

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spelling	th-cmuir.6653943832-507272018-09-04T04:49:35Z A simple expected volatility (SEV) index: Application to SET50 index options Michael McAleer Chatayan Wiphatthanananthakul Computer Science Mathematics In 2003, the Chicago Board Options Exchange (CBOE) made two key enhancements to the volatility index (VIX) methodology based on S&P options. The new VIX methodology seems to be based on a complicated formula to calculate expected volatility. In this paper, with the use of Thailand's SET50 Index Options data, we modify the VIX formula to a very simple relationship, which has a higher negative correlation between the VIX for Thailand (TVIX) and SET50 index options. We show that TVIX provides more accurate forecasts of option prices than the simple expected volatility (SEV) index, but the SEV index outperforms TVIX in forecasting expected volatility. Therefore, the SEV index would seem to be a superior tool as a hedging diversification tool because of the high negative correlation with the volatility index. Crown Copyright © 2010. 2018-09-04T04:44:47Z 2018-09-04T04:44:47Z 2010-06-01 Journal 03784754 2-s2.0-77953324993 10.1016/j.matcom.2010.04.001 https://www.scopus.com/inward/record.uri?partnerID=HzOxMe3b&scp=77953324993&origin=inward http://cmuir.cmu.ac.th/jspui/handle/6653943832/50727
institution	Chiang Mai University
building	Chiang Mai University Library
country	Thailand
collection	CMU Intellectual Repository
topic	Computer Science Mathematics
spellingShingle	Computer Science Mathematics Michael McAleer Chatayan Wiphatthanananthakul A simple expected volatility (SEV) index: Application to SET50 index options
description	In 2003, the Chicago Board Options Exchange (CBOE) made two key enhancements to the volatility index (VIX) methodology based on S&P options. The new VIX methodology seems to be based on a complicated formula to calculate expected volatility. In this paper, with the use of Thailand's SET50 Index Options data, we modify the VIX formula to a very simple relationship, which has a higher negative correlation between the VIX for Thailand (TVIX) and SET50 index options. We show that TVIX provides more accurate forecasts of option prices than the simple expected volatility (SEV) index, but the SEV index outperforms TVIX in forecasting expected volatility. Therefore, the SEV index would seem to be a superior tool as a hedging diversification tool because of the high negative correlation with the volatility index. Crown Copyright © 2010.
format	Journal
author	Michael McAleer Chatayan Wiphatthanananthakul
author_facet	Michael McAleer Chatayan Wiphatthanananthakul
author_sort	Michael McAleer
title	A simple expected volatility (SEV) index: Application to SET50 index options
title_short	A simple expected volatility (SEV) index: Application to SET50 index options
title_full	A simple expected volatility (SEV) index: Application to SET50 index options
title_fullStr	A simple expected volatility (SEV) index: Application to SET50 index options
title_full_unstemmed	A simple expected volatility (SEV) index: Application to SET50 index options
title_sort	simple expected volatility (sev) index: application to set50 index options
publishDate	2018
url	https://www.scopus.com/inward/record.uri?partnerID=HzOxMe3b&scp=77953324993&origin=inward http://cmuir.cmu.ac.th/jspui/handle/6653943832/50727
_version_	1681423642000359424

A simple expected volatility (SEV) index: Application to SET50 index options

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