Download or read book Implied volatility in option prices and the lead lag relation between stock and option prices written by Phelim P. Boyle and published by . This book was released on 1994 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Implied Volatility in Option Prices and the Lead Lag Relation between Stock and Option Prices written by Hun Y. Park and published by . This book was released on 1998 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: We show that if a particular lead-lag relation exists between the option and stock markets, the implied volatility in option prices can be biased depending on the level of the true volatility. The higher the true volatility, the more upward (downward) biased the implied volatility will be, if the option market leads (lags) the stock market. We present some empirical results on the intraday implied volatility in option prices as an application or evidence of the theory.

Download or read book Temporal Price Relation between Stock and Option Markets and a Bias of Implied Volatility in Option Prices written by Phelim P. Boyle and published by . This book was released on 2000 with total page 25 pages. Available in PDF, EPUB and Kindle. Book excerpt: We show that if a particular temporal relation exists between the option and spot markets, the implied volatility in option prices can be biased depending on the level of the true volatility. The higher the true volatility, the more upward (downward) biased the implied volatility will be, if the option market leads (lags) the spot market. Using intraday data of the Samp;P 500 index options, we show that the option market leads the spot market at least in the sample. More importantly, the implied volatility is biased due to the lead-lag relationship, and the bias is more profound when the market is more volatile.

Download or read book Essays on Volatilities Implied by Option Prices written by Aamir Mohammad Sheikh and published by . This book was released on 1987 with total page 294 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book The Implied Volatility of Option Prices written by Laurence Copeland and published by . This book was released on 1998 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper presents and tests a model of the volatility of individual company stocks derived from option prices. The data comes from 63 traded options quoted on the London International Financial Futures Exchange. The model relates volatilities to earnings announcement dates, interest rate volatility and to accounting variables representing leverage, the degree of fixed rate debt, asset duration and earnings inflation indexation. The model predicts that volatility is positively related to duration and leverage and negatively related to both the degree of inflation indexation and the proportion of fixed rate debt in the capital structure. Empirical results suggest that duration and inflation indexation are significant determinants of the implied volatility. Time series test also show an expected drop in volatility after the earnings announcement date and in most cases a positive relationship between the implied volatility of the stock and the volatility of interest rates.

Download or read book The Meaning of Implied Volatility in Pricing Stock Options Traded in Options Markets written by João Luís Correia Duque and published by . This book was released on 1994 with total page 352 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Option Prices with Uncertain Fundamentals written by Alexander David and published by . This book was released on 1999 with total page 78 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Option Markets and Implied Volatility written by Scott Mixon and published by . This book was released on 2010 with total page 72 pages. Available in PDF, EPUB and Kindle. Book excerpt: Traders in the nineteenth century appear to have priced options the same way that twenty-first century traders price options. Empirical regularities relating implied volatility to realized volatility, stock prices, and other implied volatilities (including the volatility skew), are qualitatively the same in both eras. Modern pricing models and centralized exchanges did not fundamentally alter pricing behavior, but they generated increased trading volume and a much closer conformity in the level of observed and model prices. The major change in pricing was the sharp decline in implied volatility relative to realized volatility, evident immediately upon the opening of the CBOE.

Download or read book The Impact of Firm Specific News on Implied Volatilities written by Monique W.M. Donders and published by . This book was released on 1998 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: We study the implied volatility behavior of European Options Exchange call option prices around scheduled news announcement days of the underlying stock. Implied volatilities significantly increase during the pre-event period and reach a maximum at the eve of the news announcement. After the news release, the implied volatility drops sharply and is at its minimum four days after the news release. From that point on it gradually moves back to its long run level. These results also hold if implied volatilities are corrected for market-wide changes in volatility by subtracting the implied volatility of the EOE-index or the average implied volatility of a group of control stocks. The volatility of the underlying stocks does not change during the pre- and post-event period. Only at the event date itself movements in the price of the underlying stock are significantly larger than expected, given mean and standard deviation of the stock returns in the control period. Hence, volatility of the underlying assets seems to be higher only on event days. We give an option pricing model based on this one-time jump in volatility. The model implicates a pattern of changes in implied volatilities that roughly agrees with the above described pattern. We test two trading strategies that may profit from the movements in implied volatilities and find that the results are statistically insignificant.

Download or read book Lead Lag Relationship Between Returns and Implied Moments written by Sol Kim and published by . This book was released on 2016 with total page 25 pages. Available in PDF, EPUB and Kindle. Book excerpt: This study investigates whether a lead-lag relationship exists between the returns and the moments of the implied risk-neutral density (RND) in Korea Composite Stock Price Index (KOSPI) 200 spot, futures, and options markets. The empirical analysis suggests that although there is a bi-directional lead-lag relationship between the returns and the implied moments, the skewness and kurtosis of the implied RND Granger-cause the spot and futures returns more strongly than the returns do. In contrast, the implied volatility is shown to Granger-cause the returns less strongly than the returns do. In addition, this study shows that the lead-lag relationship strengthens when the spot market is exceptionally bullish or bearish.

Download or read book Pricing Efficiency in the Long term Index Options Market written by Anuradha Kandikuppa and published by . This book was released on 1999 with total page 250 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book The Cross Sectional Relationship between Trading Costs and Lead Lag Effects in Stock Option Markets written by Matthew L. O'Connor and published by . This book was released on 1999 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Prior empirical research has failed to settle the question of lead/lag effects between stock and option markets. This study investigates the relation between cross-sectional differences in trading costs and intraday lead/lag effects in stock and option markets. The data for the study comprise 19 firms sampled at five-minute intervals over a two-month period. Consistent with a trading cost hypothesis, results indicate overall stock market leading behavior. However, the lead appears to be related to option market trading costs. This study uses an error correction model framework to investigate the lead/lag effects. This approach provides information on both the long run equilibrating process as well as the short term interactions between stock and option markets. Information regarding the long run equilibrating process is important to the overall understanding of lead/lag effects and cannot be determined from time series models of differenced data. Specific criteria for assessing lead/lag effects in cointegrated series are also proposed. One advantage of these new criteria is their ability to identify leading behavior in the presence of feedback. All models are estimated with quote data and are constructed to eliminate overnight effects. Hence, the results are robust to previously identified distortions due to closing, overnight, and potential non-trading effects. However, caution should be employed in generalizing the results as the study covers a two-month trading period for a limited number of firms.

Download or read book How Duration Between Trades of Underlying Securities Affects Option Prices written by Álvaro Cartea and published by . This book was released on 2013 with total page 49 pages. Available in PDF, EPUB and Kindle. Book excerpt: We propose a model for stock price dynamics that explicitly incorporates random waiting times between trades, also known as duration, and show how option prices can be calculated using his model. We use ultra-high-frequency data for blue-chip companies to motivate a particular choice of waiting-time distribution and then calibrate risk-neutral parameters from options data. We also show that the convexity commonly observed in implied volatilities may be explained by the presence of duration between trades. Furthermore, we find that, ceteris paribus, implied olatility decreases in the presence of longer durations, a result consistent with the findings of Engle (2000) and Dofour and Engle (2000) which demonstrates the relationship between levels of activity and volatility for stock prices. Finally, by directly employing information given by time- tamps of trades, our approach provides a direct link between the literature on stochastic time hanges and business time (see Clark (1973)) and, at the same time, highlights the link between number and time of arrival of transactions with implied volatility and stochastic volatility models.

Download or read book The Information Content in Implied Idiosyncratic Volatility and the Cross Section of Stock Returns written by Dean Diavatopoulos and published by . This book was released on 2014 with total page 33 pages. Available in PDF, EPUB and Kindle. Book excerpt: Current literature is inconclusive as to whether idiosyncratic risk influences future stock returns and the direction of the impact. Prior studies are based on historical realized volatility. Implied volatilities from option prices represent the market's assessment of future risk and are likely a superior measure to historical realized volatility. We use implied idiosyncratic volatilities on firms with traded options to examine the relation between idiosyncratic volatility and future returns. We find a strong positive link between implied idiosyncratic risk and future returns. After considering the impact of implied idiosyncratic volatility, historical realized idiosyncratic volatility is unimportant. This performance is strongly tied to small size and high book-to-market equity firms.

Download or read book The Implied Volatility of Option Prices written by Laurence S. Copeland and published by . This book was released on 1995 with total page 22 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book The Information Content of Implied Volatilities and Model Free Volatility Expectations written by Stephen J. Taylor and published by . This book was released on 2008 with total page 64 pages. Available in PDF, EPUB and Kindle. Book excerpt: The volatility information content of stock options for individual firms is measured using option prices for 149 U.S. firms during the period from January 1996 to December 1999. Volatility forecasts defined by historical stock returns, at-the-money (ATM) implied volatilities and model-free (MF) volatility expectations are compared for each firm. The recently developed model-free volatility expectation incorporates information across all strike prices, and it does not require the specification of an option pricing model.Our analysis of ARCH models shows that, for one-day-ahead estimation, historical estimates of conditional variances outperform both the ATM and the MF volatility estimates extracted from option prices for more than one-third of the firms. This result contrasts with the consensus about the informational efficiency of options written on stock indices; several recent studies find that option prices are more informative than daily stock returns when estimating and predicting index volatility. However, for the firms with the most actively traded options, we do find that the option forecasts are nearly always more informative than historical stock returns. When the prediction horizon extends until the expiry date of the options, our regression results show that the option forecasts are more informative than forecasts defined by historical returns for a substantial majority (86%) of the firms. Although the model-free (MF) volatility expectation is theoretically more appealing than alternative volatility estimates and has been demonstrated to be the most accurate predictor of realized volatility by Jiang and Tian (2005) for the Samp;P 500 index, the results for our firms show that the MF expectation only outperforms both the ATM implied volatility and the historical volatility for about one-third of the firms. The firms for which the MF expectation is best are not associated with a relatively high level of trading in away-from-the-money options.

Download or read book The Persistence of Volatility and Stock Market Fluctuations written by James M. Poterba and published by . This book was released on 1984 with total page 44 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper examines the potential influence of changing volatility in stock market prices on the level of stock market prices. It demonstrates that volatility is only weakly serially correlated, implying that shocks to volatility do not persist. These shocks can therefore have only a small impact on stockmarket prices, since changes in volatility affect expected required rates of return for relatively short intervals. These findings lead us to be skeptical of recent claims that the stock market's poor performance during the 1970's can be explained by volatility-induced increases in risk premia.