A Market Microstructure Analysis of the KOSPI200 Stock Index Options Market: Investor‘s Strategic Behavior

2003 ◽  
Vol 11 (1) ◽  
pp. 25-55
Author(s):  
Gyeong Sig Eom ◽  
Sang Beom Han
Keyword(s):  
Strategic Behavior ◽  
Option Price ◽  
Price Volatility ◽  
Stock Index ◽  
Options Market ◽  
Diurnal Pattern ◽  
Index Options ◽  
Informed Traders ◽  
Acd Model ◽  
Intraday Data

This paper analyzes trader‘s strategic behavior in the KOSPI200 index options market. Using intraday data for various at-the-money options, we obtain the following results : (1) The frequency of trades is a better market statistic than trade size for option price volatility. This may result from the hedging behavior of large traders. This also suggests that the informed traders utilize their informational advantage gradually. (2) The effect of the duration of previous intervals on the expected duration of current intervals is persistent. (3) In the modified ACD model, the standardized distribution of duration is not exponential; rather, it is Weibull with r < 1. (4) There is no specific diurnal pattern of the duration of the duration of the options market. (5) we find a clear maturity effect.

scholarly journals Predictability of OTC Option Volatility for Future Stock Volatility

2020 ◽  
Vol 12 (12) ◽  
pp. 5200
Author(s):  
Jungmu Kim ◽  
Yuen Jung Park
Keyword(s):  
Information Content ◽  
Unbiased Estimator ◽  
Implied Volatility ◽  
Realized Volatility ◽  
Stock Index ◽  
Options Market ◽  
Over The Counter ◽  
Index Options ◽  
Stock Volatility ◽  
Future Realized Volatility

This study explores the information content of the implied volatility inferred from stock index options in the over-the-counter (OTC) market, which has rarely been studied in the literature. Using OTC calls, puts, and straddles on the KOSPI 200 index, we find that implied volatility generally outperforms historical volatility in predicting future realized volatility, although it is not an unbiased estimator. The results are more apparent for options with shorter maturity. However, while implied volatility has strong predictability during normal periods, historical volatility is superior to implied volatility during a period of crisis due to the liquidity contraction of the OTC options market. This finding suggests that the OTC options market can play a role in conveying important information to predict future volatility.

On the Incompleteness of Korean Stock Index Options Market

2004 ◽  
Vol 12 (2) ◽  
pp. 25-43
Author(s):  
Jung Soon Hyun ◽  
Byung Kun Rhee
Keyword(s):  
Risk Factor ◽  
Estimation Method ◽  
Stock Index ◽  
Additional Risk Factor ◽  
Options Market ◽  
Pricing Kernel ◽  
Index Options ◽  
Additional Risk ◽  
Underlying Asset ◽  
Black Scholes

When the Black-Scholes assumptions hold market is instantaneously complete and options are redundant securities. This paper tests whether options are needed for spanning of the pricing kernel in addition to the risk-free bond and underlying asset in Korean stock index options market. Using Hansen's GMM estimation method, we find that pricing kernel cannot be spanned with the risk-free bond and underlying asset. Options are needed for spanning to incorporate the additional risk factor. This result is consistent with previous results using American options market data.

Traders' strategic behavior in an index options market

2004 ◽  
Vol 25 (2) ◽  
pp. 105-133 ◽  
Author(s):  
Kyong Shik Eom ◽  
Sang Buhm Hahn
Keyword(s):  
Strategic Behavior ◽  
Options Market ◽  
Index Options

Option Demands and Investment Horizon Effects

2016 ◽  
Vol 24 (4) ◽  
pp. 619-646
Author(s):  
Byung Jin Kang
Keyword(s):  
Portfolio Choice ◽  
Global Financial Crisis ◽  
Optimal Choice ◽  
Investment Horizon ◽  
Options Market ◽  
Index Options ◽  
Intraday Data ◽  
Short Horizon ◽  
The Global Financial Crisis

This paper investigates the effect of investment horizon on the optimal portfolio choice of investors, who can access to index options market. This is to reconcile the empirical anomaly of Driessen and Maenhout (2007), which suggested that it is always optimal to short OTM puts and ATM straddles, regardless of investors’ preferences. Using the intraday data on KOSPI200 index options, one of the most actively traded options in the world, we analyze the differences in optimal choice between ‘position traders (i.e., long-term investors)’ and ‘day traders (i.e., short-term investor)’. Our main empirical findings are summarized as follows. First, short horizon investors who do not want to hold overnight option positions tend to optimally take a long position in options, whereas long horizon investors tend to hold short option positions. Second, these differences in optimal choice between short- and long-horizon investors are clearly evident in OTM puts rather than ATM straddles. Finally, our empirical findings are still valid even after considering alternative preferences structures of investors, transaction costs, different data filtering rules, and the effect of the Global financial crisis.

The Martingale Restriction and Relative Market Efficiency between KOSPI 200 Index and Index Options Market

2015 ◽  
Vol 23 (3) ◽  
pp. 367-389
Author(s):  
Tae-Hun Kang ◽  
Myung-Chul Lee
Keyword(s):  
Time Series ◽  
Market Efficiency ◽  
Trading Volume ◽  
Approximate Entropy ◽  
Stock Index ◽  
Informational Efficiency ◽  
Options Market ◽  
Index Options ◽  
Directional Information ◽  
Price Differences

This paper examines the martingale restriction for the KOSPI 200 index options market. And in cases of the rejections, we investigate the relative market efficiency between stock index and stock index options market, using approximate entropy (ApEn) method proposed by Pincus (1994), which quantifies a complexity, irregularity and unpredictability in time series. The empirical results of this study clearly reject the martingale restriction and regression analyses indicate that the historical returns of underlying index can explain about 25% of the price differences between option-implied and market index prices but the total trading volume can explain only a small portion of the price differences. These results have cast doubt on the informational efficiency of this market. Comparing the relative market efficiency based on ApEn have showed that the complexity or irregularity of KOSPI 200 index is larger than the index options during the entire sample period. But, Examining separately ApEn of the magnitude and the sign time series which compose log-returns document that stock index options market reflect more efficiently the information about the direction of price changes than the stock index market in 2014 and the efficiency of the index options market about the directional information may be affected by directional traders who prefer certain strategies designed by exploiting past stock market movements.

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