Stylized patterns of implied volatility in India: a case study of NSE Nifty options

2014 ◽  
Vol 6 (3) ◽  
pp. 231-254 ◽  
Author(s):  
Imlak Shaikh ◽  
Puja Padhi
Keyword(s):  
Term Structure ◽  
Implied Volatility ◽  
Practical Implication ◽  
Empirical Work ◽  
Ordinary Least Squares ◽  
Options Market ◽  
Volatility Smile ◽  
Strike Price ◽  
Content Type ◽  
Option Pricing Model

Purpose – The aim of this study is to examine the “volatility smile” or/and “skew”, term structure and implied volatility surfaces based on those European options written in the standard and poor (S&P) Nifty equity index. The stochastic nature of implied volatility across strike price, time-to-expiration and moneyness violates the core assumption of the Black–Scholes option pricing model. Design/methodology/approach – The potential determinants of implied volatility are the degree of moneyness, time-to-expiration and the liquidity of the strikes. The empirical work has been expressed by means of a simple ordinary least squares (OLS) framework and presents the estimation results according to moneyness, time-to-expiration and liquidity of options. Findings – The options data give evidence of the existence of a classical U-shaped volatility smile for the Indian options market. Indeed, there is some evidence that the “volatility smirk” which pertains to 30-day options and also implied volatility remain higher for the shorter maturity options and decrease as the time-to-expiration increases. The results lead us to believe that in-the-money calls and out-of-the-money puts are of higher volatility than at-the-money options. Conclusion was drawn due to the persistence of the smile in the options market. Practical implications – The practical implication of studying stylized patterns of implied volatility is that it educates the volatility traders about how in-the-money and out-of-the-money options are priced in the options market, and provides an estimate of volatility for the pricing of future options. Originality/value – This study is an extension of previous work. The undertaking has been to examine the case of a more liquid and transparent options market, which is missing from the earlier work. The current study is more relevant because, since 2008, significant changes have been observed in the futures and options market in India.

scholarly journals Patterns of 50 ETF Options Implied Volatility in China: On Implied Volatility Functions

2021 ◽  
Vol 24 (1) ◽  
pp. 135-145
Author(s):  
Pengshi Li ◽  
Yan Lin ◽  
Yuting Zhong
Keyword(s):  
Implied Volatility ◽  
Stock Exchange ◽  
Empirical Work ◽  
Ordinary Least Squares ◽  
Options Pricing ◽  
Options Market ◽  
European Options ◽  
Volatility Smile ◽  
Volatility Function ◽  
Better Than

The aim of this study is to examine the volatility smile based on the European options on Shanghai stock exchange 50 ETF. The data gives evidence of the existence of a well-known U-shaped implied volatility smile for the SSE 50 ETF options market in China. For those near-month options, the implied volatility smirk is also observed. And the implied volatility remains high for the short maturity and decreases as the maturity increases. The patterns of the implied volatility of SSE 50 ETF options indicate that in-the-money options and out-of-the-money options are more expensive relative to at-the-money options. This makes the use of at-the-money implied volatility for pricing out-of- or in-the-money options questionable. In order to investigate the implied volatility, the regression-based implied volatility functions model is considered employed to study the implied volatility in this study as this method is simple and easy to apply in practice. Several classical implied volatility functions are investigated in this paper to find whether some kind of implied volatility functions could lead to more accurate options pricing values. The potential determinants of implied volatility are the degree of moneyness and days left to expiration. The empirical work has been expressed by means of simple ordinary least squares framework. As the study shows, when valuing options, the results of using volatility functions are mixed. For far-month options, using at-the-money implied volatility performs better than other volatility functions in option valuation. For near-month options, the use of volatility functions can improve the valuation accuracy for deep in-the-money options or deep out-of-the-money options. However, no particular implied volatility function performs very well for options of all moneyness level and time to maturity.

Building entrepreneurial capacity in rural areas

2017 ◽  
Vol 23 (6) ◽  
pp. 903-918
Author(s):  
Anna Krakowiak-Bal ◽  
Urszula Ziemianczyk ◽  
Andrzej Wozniak
Keyword(s):  
Rural Areas ◽  
Economic Activity ◽  
Local Development ◽  
Practical Implication ◽  
Public Investment ◽  
Empirical Work ◽  
Important Criterion ◽  
Economic Activities ◽  
Ahp Method ◽  
Content Type

Purpose The purpose of this paper is to verify the development of economic activities in rural areas in terms of their public infrastructural equipment. Design/methodology/approach As a case study, the Polish rural areas were selected. A two-stage survey was conducted in 2015. The first stage involved entrepreneurs from rural areas. The second stage of survey was data collection for rural areas regarding economic activity and infrastructural equipment. In total, 121 objects (communes) were selected. The multicriteria analytic hierarchy process (AHP) method was used for the analysis. Findings The results demonstrate that for each kind of business, communication accessibility is the most important criterion. By contrast, environmental awareness and concern for the environment is the least important element for pursuit of the economic activity in rural areas. Research limitations/implications Limitations are connected mainly with the applied AHP method. The number of the comparable elements at the same hierarchy level is limited due to practical purposes. In addition, an assumption of full comparability of elements (criteria and alternatives) in the hierarchy model can be discussed. Furthermore, data quality and availability limit the scope of the empirical work. This study is a major simplification of reality modeling, but it gives practical benefits by simplifying the decision support procedure. Practical implications The findings of this paper contribute to the advancing theory of local development, with public infrastructure being one of its basic elements (factor of production). This paper explores the importance of physical infrastructure for different economic activities, and thus offers theoretical insights in two areas. First, this paper indicates the uneven weight of each infrastructure element for the various business sectors. Second, based on the collected data, this study also contributes to the literature, by using the AHP method to explore the relationships between infrastructural equipment and economic activity in rural areas. As the practical implication for local and regional development policies, this study indicates, that the most important criterion for each kind of economic activity is communication accessibility. This kind of public investment should be undertaken primarily to support entrepreneurship, especially in rural areas. Originality/value The uniqueness of the method lies in assumption about the uneven weights of infrastructure elements and therefore their impact on the process of ranking the objects (rural areas). The weight of individual infrastructure elements will vary depending on the kind of economic activity; therefore, the way of ordering will also be different for each economic activity.

Testing for the Marshall–Lerner condition in Egypt: an empirical analysis

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
John Adams ◽  
Ali Metwally
Keyword(s):  
Trade Balance ◽  
Empirical Work ◽  
Ordinary Least Squares ◽  
Real Effective Exchange Rate ◽  
Content Type ◽  
Goods And Services ◽  
Interest Rate Spread ◽  
Long Run ◽  
Relevant Variables ◽  
Effective Exchange

PurposeThe purpose of this paper is to examine to what extent evidence can be found for the presence of the Marshall–Lerner (ML) condition regarding the trade balances of Egypt. The theoretical basis of the ML is presented and then tested using Egyptian trade data from 1965 to 2017.Design/methodology/approachThe data are analysed via standard ordinary least squares models subject to the constraints imposed by economic theory, specifically ML theory, in which the coefficients represent elasticities. A range of tests are undertaken to establish the validity of the models and the model results including multicollinearity, unit root and co-integration in order to avoid spurious regressions.FindingsThe export model strongly suggests that real exports of Egyptian goods and services are elastic with respect to changes in the real effective exchange rate (REER), with a coefficient weight of −1.64 and is significant at 1%. However, for the import model the coefficient weight of the REER −1.17 and is significant at 1%. This result contradicts ML theory, where an increase in the REER makes imports cheaper and thus causes them to increase.Research limitations/implicationsThe limitations of the study are two in particular, the first is that the frequency of the data employed is annual, not monthly or even quarterly, which means that the sample size would have been larger, and the estimated parameters could have been more accurate in forecasting the future behaviour of exports and imports. There could be several other indicators that might have clear impacts on exports and imports. In other words, it is possible that a model with consumer spending and government spending as well as terms of trade, inflation, interest rate spread and taxes is going to capture more of the variation that occurs in Egypt's trade balance components.Practical implicationsThe results suggest that the Egypt-International Monetary Fund plan (depreciation) is likely to have a positive effect on the economy. However, this does not mean that the deficit of the trade balance is going to change into a surplus once the policies of the plan are fully applied, but it does mean the deficit will reduce. Only in the long run is the trade balance likely to record a sustainable surplus. But the latter will heavily depend on the structure of exports and imports and maintaining price stability, both of which are key government policy areas.Originality/valueThe paper builds on previous theoretical and empirical work in this field and in particular is focussed on Egypt. There are extremely few analyses of the ML condition regarding Egypt. This paper provides new information on this and can also be utilized by researchers to further develop the analysis and method through identification of other potentially relevant variables within a single country ML study.

A new method to solve fuzzy stochastic finance problem

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Jayanta Kumar Dash ◽  
Sumitra Panda ◽  
Golak Bihari Panda
Keyword(s):  
Option Pricing ◽  
Market Price ◽  
Pricing Model ◽  
Strike Price ◽  
Content Type ◽  
Fuzzy Environment ◽  
Black Scholes ◽  
Option Pricing Model ◽  
A New Technique ◽  
Log Normal

PurposeThe authors discuss the value of portfolio and Black–Scholes (B–S)-option pricing model in fuzzy environment.Design/methodology/approachThe B–S option pricing model (OPM) is an important role of an OPM in finance. Here, every decision is taken under uncertainty. Due to randomness or vagueness, these uncertainties may be random or fuzzy or both. As the drift µ, the degree of volatility s, interest rate r, strike price k and other parameters of the value of the portfolio V(t), market price S_0 (t) and call option C(t) are not known exactly, so they are treated as positive fuzzy number. Partial expectation of fuzzy log normal distribution is derived. Also the value of portfolio at any time t and the B–S OPM in fuzzy environment are derived. A numerical example of B–S OPM is illustrated.FindingsFirst, the authors are studying some various paper and some stochastic books.Originality/valueThis is a new technique.

Behaviour and determinants of implied volatility in Indian market

2016 ◽  
Vol 13 (3) ◽  
pp. 271-291 ◽  
Author(s):  
Narain ◽  
Narander Kumar Nigam ◽  
Piyush Pandey
Keyword(s):  
Implied Volatility ◽  
Hedge Fund ◽  
International Study ◽  
Volatility Smile ◽  
Vector Autoregressions ◽  
Index Options ◽  
Content Type ◽  
Put Options ◽  
Fund Managers ◽  
Option Contract

Purpose The purpose of this paper is to understand the patterns of the implied volatility (IV) of the Indian index option market and its relationship with moneyness (called the volatility smile). Its goal is also to ascertain the determinants of IV. Design/methodology/approach For this purpose, IVs were computed from the daily call and put data of CNX Nifty index options from April 2004 to March 2014. The patterns of IVs were analysed using univariate parametric tests. Multivariate regression analyses were conducted to understand the relationships observed. Resultantly, vector autoregressions were performed to assess the determinants of IV. Findings The results suggested that there was asymmetric volatility across time and strike prices using alternative measures of moneyness. Furthermore, it was found that the IV of lower strike prices was significantly higher (lower) than that of higher strike prices for call (put) options. Put IV was observed to be higher than call IV irrespective of any attributes. The results further showed that current-month contracts have significantly higher IV than those for next month and those were followed by far-month contracts. Nifty futures’ volumes and momentum were found to be significant determinants of IV. Practical implications The behaviour of the volatility smile is important when accounting for the Vega risks in the portfolios of hedge fund managers. While taking a position, besides the Black-Scholes-Merton (BSM) model’s input factors, investors must consider the previous behaviour of volatility, a market’s microstructures and its liquidity for a put option contract. They must also consider the attributes of the underlying for a call option contract. Originality/value This is the first decadal study (the longest span of data for any international study on this subject) to confirm the existence of the volatility smile for the index options market in India. It examines and confirms the smile’s asymmetry patterns for different definitions of moneyness, as well as option types, the tenure of options contracts and the different phases of market conditions. It further helps to identify the determinants of IV and so has renewed importance for traders.

scholarly journals PERBANDINGAN METODE NEWTON-RAPHSON DAN ALGORITMA GENETIK PADA PENENTUAN IMPLIED VOLATILITY SAHAM

2012 ◽  
Vol 1 (2) ◽  
Author(s):  
Kania Evita Dewi
Keyword(s):  
Implied Volatility ◽  
Volatility Smile ◽  
Strike Price ◽  
Newton Raphson

Penelitian ini bertujuan untuk menentukan implied volatility dari suatu saham dengan menggunakan algoritma genetika dan metode Newton-Raphson. Algoritma genetika yang merupakan suatu cara untuk mencari solusi masalah optimasi, tidak memerlukan sifat dari fungsi yang akan dicari solusinya, dapat menyelesaikan semua fungsi dengan syarat fungsi tersebut dapat diubah kedalam masalah optimasi. Dalam penelitian ini hasil perhitungan yang menggunakan algoritma genetika dibandingkan dengan hasil perhitungan dengan metode Newton-Raphson yang sudah biasa digunakan. Hasil penelitian menunjukan implied volatility yang dihasilkan metode Newton-Raphson lebih mendekati volatilitas bursa dibanding yang dihasilkan algoritma genetika. Ini dapat dilihat dari selisih antara harga opsi teoritis dengan harga opsi dibursa yang dihasilkan metode Newton-Raphson lebih kecil dibanding yang dihasilkan algoritma genetika. Penelitian ini juga memperlihatkan bahwa volatilitas opsi put terhadap strike price berbentuk volatility smile dan untuk volatilitas opsi call terhadap strike price berbentuk volatility skew untuk opsi yang memiliki maturity time 1 bulan dan 2 bulan dan untuk maturity time yang lain volatilitasnya berbentuk volatility smile.

Does disease outbreak news impact equity, commodity and foreign exchange market? Investors' fear of the pandemic COVID-19

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Imlak Shaikh ◽  
Toan Luu Duc Huynh
Keyword(s):  
Foreign Exchange ◽  
Implied Volatility ◽  
Foreign Exchange Market ◽  
Global Financial Crisis ◽  
Empirical Work ◽  
Disease Outbreak ◽  
Market Volatility ◽  
Content Type ◽  
Fx Market ◽  
Practical Implications

PurposeMarket volatility is subject to good or bad news and even responses to fake news and policy changes. In this piece of work, the authors consider the effects of the recent COVID-19 pandemic event on the global equity market, commodities and FX market, measured in terms of the investors' fear index.Design/methodology/approachIn this empirical work, the authors employ time series-based regression models followed by augmented dummy regressions and growth of the COVID-19.FindingsCOVID-19-induced investors' fear appears to be higher in the equity segment for the first time since the market crash of 1987 and the global financial crisis of 2008–2009. Furthermore, this disease outbreak shock has been more pronounced in terms of crude oil prices. Besides, a market participant in the commodity and FX market has paid a disproportionate premium to protect such pandemic development. Findings show that Options act as the best hedge against an uncertainty like COVID-19 and that option-based implied volatility is the best measure of investors' fear and market volatility.Practical implicationsThis study has practical implications for the financial markets, e.g. (1) Contagious disease outbreak news matters for the equity, commodity, and foreign exchange markets – empirical outcome validates the theory of market efficiency valid for the Options. (2) Option's implied volatility is the best indicator of investor fear measured for the unprecedented economic news. Further implication holds for the policymakers and society, e.g. (1) The unavailability of short-selling could be one plausible reason for increased uncertainty and volatility; hence, policymakers should look upon this issue at the exchange level. (2) Any market needs multiple lines of risk management, effective price discovery and attractive liquidity.Originality/valueThe study is novel in terms of presenting market behavior amid COVID-19 across global equity markets and commodities and FX markets.

scholarly journals GARCH Generated Volatility Indices of Bitcoin and CRIX

2020 ◽  
Vol 13 (6) ◽  
pp. 121 ◽  
Author(s):  
Pierre J. Venter ◽  
Eben Maré
Keyword(s):  
Option Pricing ◽  
Term Structure ◽  
Implied Volatility ◽  
Conditional Heteroskedasticity ◽  
Option Prices ◽  
Pricing Model ◽  
European Option ◽  
Short Term ◽  
Market Prices ◽  
Option Pricing Model

In this paper, the pricing performance of the generalised autoregressive conditional heteroskedasticity (GARCH) option pricing model is tested when applied to Bitcoin (BTCUSD). In addition, implied volatility indices (30, 60-and 90-days) of BTCUSD and the Cyptocurrency Index (CRIX) are generated by making use of the symmetric GARCH option pricing model. The results indicate that the GARCH option pricing model produces accurate European option prices when compared to market prices and that the BTCUSD and CRIX implied volatility indices are similar when compared, this is consistent with expectations because BTCUSD is highly weighted when calculating the CRIX. Furthermore, the term structure of volatility indices indicate that short-term volatility (30 days) is generally lower when compared to longer maturities. Furthermore, short-term volatility tends to increase to higher levels when compared to 60 and 90 day volatility when large jumps occur in the underlying asset.

scholarly journals Implied volatility estimation of bitcoin options and the stylized facts of option pricing

2021 ◽  
Vol 7 (1) ◽  
Author(s):  
Noshaba Zulfiqar ◽  
Saqib Gulzar
Keyword(s):  
Option Pricing ◽  
Implied Volatility ◽  
Volatility Smile ◽  
Stylized Facts ◽  
Approximation Techniques ◽  
Risk Hedging ◽  
Black Scholes ◽  
Option Pricing Model ◽  
Newton Raphson ◽  
Futures And Options

AbstractThe recently developed Bitcoin futures and options contracts in cryptocurrency derivatives exchanges mark the beginning of a new era in Bitcoin price risk hedging. The need for these tools dates back to the market crash of 1987, when investors needed better ways to protect their portfolios through option insurance. These tools provide greater flexibility to trade and hedge volatile swings in Bitcoin prices effectively. The violation of constant volatility and the log-normality assumption of the Black–Scholes option pricing model led to the discovery of the volatility smile, smirk, or skew in options markets. These stylized facts; that is, the volatility smile and implied volatilities implied by the option prices, are well documented in the option literature for almost all financial markets. These are expected to be true for Bitcoin options as well. The data sets for the study are based on short-dated Bitcoin options (14-day maturity) of two time periods traded on Deribit Bitcoin Futures and Options Exchange, a Netherlands-based cryptocurrency derivative exchange. The estimated results are compared with benchmark Black–Scholes implied volatility values for accuracy and efficiency analysis. This study has two aims: (1) to provide insights into the volatility smile in Bitcoin options and (2) to estimate the implied volatility of Bitcoin options through numerical approximation techniques, specifically the Newton Raphson and Bisection methods. The experimental results show that Bitcoin options belong to the commodity class of assets based on the presence of a volatility forward skew in Bitcoin option data. Moreover, the Newton Raphson and Bisection methods are effective in estimating the implied volatility of Bitcoin options. However, the Newton Raphson forecasting technique converges faster than does the Bisection method.

The transparency construct in corporate marketing

2017 ◽  
Vol 51 (9/10) ◽  
pp. 1503-1509 ◽  
Author(s):  
Shirley R. Leitch
Keyword(s):  
Empirical Research ◽  
Practical Implication ◽  
Empirical Work ◽  
Marketing Theory ◽  
Marketing Practice ◽  
Corporate Marketing ◽  
Content Type ◽  
Starting Point ◽  
Definition Of ◽  
Corporate Social

Purpose The centrality of ethics and corporate social responsibility (CSR) to the corporate marketing perspective serves as a point of differentiation for the field within the broader marketing discipline. Currently, there is a lack of clarity around the ‘transparency’ construct, which is an integral if ill-defined dimension of ethics and CSR in marketing. A shared understanding of the transparency construct is thus a significant gap within corporate marketing theory. Addressing that gap is the purpose of this paper. Design/methodology/approach The approach in this paper is conceptual. In developing a detailed definition of transparency, the paper draws on core papers in corporate marketing theory as well as organisational transparency. Findings Rawlins’ (2009) multi-layered definition of the transparency construct is identified as appropriate for adoption in the corporate marketing context. Each of the six layers of his definition is analysed to understand what is implied and what the application of the construct means for corporate marketing practice. The implications are that the application of transparency in corporate marketing requires that a positive and proactive approach to information-sharing is adopted; the default position is to share information with stakeholders; both good and bad news are shared; the criteria – accuracy, timeliness, balance and unequivocality – are applied to all information prior to releases; an organisation commits to empowering stakeholders; and there is recognition of an obligation to account to stakeholders. Research limitations/implication The paper is conceptual in nature and does not apply the definition of the transparency construct to empirical data. It is likely that empirical research will lead to further refinements and amendments. The paper should therefore be considered as a starting point for this empirical work. Practical implication The paper provides a detailed definition of the transparency construct, which includes a discussion of what the application of the transparency construct implies and what it means for the practice of corporate marketing. The definition and its practical application are summarised in table form as a guide for both researchers and practitioners of corporate marketing. The table may serve as a guide for evaluating current organisational performance and for embedding transparency in corporate marketing practice. Originality/value This study appears to be the first paper to address the gap in the corporate marketing literature in relation to the transparency construct. This conceptual paper therefore provides a foundation for further empirical research into the application of the transparency construct in corporate marketing.

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