Volatility Forecasts for the RTS Stock Index: Option-Implied Volatility Versus Alternative Methods

This study investigates a forecasting power of volatility curvatures and risk neutral densities implicit in KOSPI 200 option prices by analyzing minute by minute historical index option intraday trading data from January of 2007 to January of 2011. We begin by estimating implied volatility functions and risk neutral price densities based on non-parametric method every minute and by calculating volatility curvature and skewness premium. We then compare the daily rate of return of the signal following trading strategy that we buy (sell) a stock index when the volatility curvature or skewness premium increases (decreases) with that of an intraday buy-and-hold strategy that we buy a stock index on 9:05AM and sell it on 2:50PM. We found that the rate of return of the signal following trading strategy was significantly higher than that of the intraday buy-and-hold strategy, which implies that the option prices have a strong forecasting power on the direction of stock market. Another finding is that the information contents of option prices disappear after three or four minutes.

Predicting Returns Using Implied Volatility Spreads : Focusing on KOSPI200 Stock Index Option

Journal of Industrial Economics and Business ◽

10.22558/jieb.2019.12.32.6.2615 ◽

2019 ◽

Vol 32 (6) ◽

pp. 2615-2626

Author(s):

Moosung Kim ◽

Gahye Kim

Keyword(s):

Implied Volatility ◽

Stock Index ◽

Index Option

Implied Volatility Skews and Stock Index Skewness and Kurtosis Implied by S&P 500 Index Option Prices

The Journal of Derivatives ◽

10.3905/jod.1997.407978 ◽

1997 ◽

Vol 4 (4) ◽

pp. 8-19 ◽

Cited By ~ 81

Author(s):

Charles J. Corrado ◽

Tie Su

Keyword(s):

Implied Volatility ◽

Stock Index ◽

Option Prices ◽

Index Option ◽

Skewness And Kurtosis

Examining Contemporaneous Relationship between Return of Nifty Index and India VIX

International Journal of Financial Management ◽

10.21863/ijfm/2015.5.2.011 ◽

2015 ◽

Vol 5 (2) ◽

Author(s):

Prasenjit Chakrabarti

Keyword(s):

Implied Volatility ◽

Stock Index ◽

Quadratic Effect ◽

Asymmetric Building ◽

Volatility Index ◽

India Vix ◽

The Relationship

The study examines the contemporaneous relationship between Nifty returns and India VIX returns. Literature documents that the relationship between them is negative and asymmetric. Building on this, the study considers the linear and quadratic effect of stock index return (CNX Nifty) and examines the changes in implied volatility index (India VIX). The study finds both linear and quadratic CNX Nifty index returns are significant for changes in the level of India VIX. Findings suggest that India VIX provides insurance both for downside market movement and size of the downside movement.

Nonlinear neural network forecasting model for stock index option price: Hybrid GJR–GARCH approach

Expert Systems with Applications ◽

10.1016/j.eswa.2007.09.056 ◽

2009 ◽

Vol 36 (1) ◽

pp. 564-570 ◽

Cited By ~ 67

Author(s):

Yi-Hsien Wang

Keyword(s):

Neural Network ◽

Option Price ◽

Stock Index ◽

Forecasting Model ◽

Index Option

The implied volatility term structure of stock index options

Journal of Empirical Finance ◽

10.1016/j.jempfin.2006.06.003 ◽

2007 ◽

Vol 14 (3) ◽

pp. 333-354 ◽

Cited By ~ 39

Author(s):

Scott Mixon

Keyword(s):

Term Structure ◽

Implied Volatility ◽

Stock Index ◽

Index Options

Empirical of the Taiwan stock index option price forecasting model – applied artificial neural network

Applied Economics ◽

10.1080/00036840601131672 ◽

2009 ◽

Vol 41 (15) ◽

pp. 1965-1972 ◽

Cited By ~ 11

Author(s):

Chin-Tsai Lin ◽

Hsin-Yi Yeh

Keyword(s):

Neural Network ◽

Artificial Neural Network ◽

Option Price ◽

Stock Index ◽

Forecasting Model ◽

Price Forecasting ◽

Artificial Neural ◽

Index Option

Forecasting the Variability of Stock Index Returns with Stochastic Volatility Models and Implied Volatility

Dynamic Modeling and Econometrics in Economics and Finance - Empirical Studies on Volatility in International Stock Markets ◽

10.1007/978-1-4757-5129-1_6 ◽

2003 ◽

pp. 71-97 ◽

Cited By ~ 3

Author(s):

Eugenie M. J. H. Hol

Keyword(s):

Stochastic Volatility ◽

Implied Volatility ◽

Stock Index ◽

Stochastic Volatility Models ◽

Volatility Models ◽

Stock Index Returns

Hedging the risk of travel and leisure stocks: The role of crude oil

Tourism Economics ◽

10.1177/1354816620922625 ◽

2020 ◽

pp. 135481662092262

Author(s):

Naji Jalkh ◽

Elie Bouri ◽

Xuan Vinh Vo ◽

Anupam Dutta

Keyword(s):

Crude Oil ◽

Implied Volatility ◽

Stock Index ◽

Model Specification ◽

The United Kingdom ◽

Crude Oil Prices ◽

Oil Markets ◽

Hedge Ratios ◽

Correlation Process

Unlike previous studies, we examine which of the implied volatilities of US stock and crude oil markets are more suitable and effective hedge for the downside risk of US travel and leisure (T&L) stocks. Using the corrected dynamic conditional correlation process, the results show that the T&L stock index is more negatively and more consistently correlated with the implied volatility of crude oil prices, suggesting that the oil implied volatility is a more suitable hedging asset. Similar results are reported for France, the United Kingdom, and developed markets. They are robust to the frequency of the data and model specification. Furthermore, the hedge ratios vary over time, which requires a regular update of hedged positions. Importantly, the highest hedge effectiveness is associated with the oil implied volatility.

Implied volatility smirk and future stock returns: evidence from the German market

Managerial Finance ◽

10.1108/mf-04-2015-0097 ◽

2015 ◽

Vol 41 (12) ◽

pp. 1357-1379

Author(s):

Di Mo ◽

Neda Todorova ◽

Rakesh Gupta

Keyword(s):

High Frequency ◽

Implied Volatility ◽

Stock Index ◽

High Frequency Data ◽

Frequency Data ◽

European Options ◽

German Market ◽

Content Type ◽

The Relationship ◽

Option Market

Purpose – The purpose of this paper is to investigate the relationship between option’s implied volatility smirk (IVS) and excess returns in the Germany’s leading stock index Deutscher-Aktien Index (DAX) 30. Design/methodology/approach – The study defines the IVS as the difference in implied volatility derived from out-of-the-money put options and at-the-money call options. This study employs the ordinary least square regression with Newey-West correction to analyse the relationship between IVS and excess DAX 30 index returns in Germany. Findings – The authors find that the German market adjusts information in an efficient way. Consequently, there is no information linkage between option volatility smirk and market index returns over the nine years sample period after considering the control variables, global financial crisis dummies, and the subsample test. Research limitations/implications – This study finds that the option market and the DAX 30 index are informationally efficient. Implications of the findings are that the investors cannot profit from the information contained in the IVS since the information is simultaneously incorporated into option prices and the stock index prices. The findings of this study are applicable to other markets with European options and for market participants who seek to exploit short-term market divergence from efficiency. Originality/value – The relationship between IVS and stock price changes has not been investigated sufficiently in academic literature. This study looks at this relationship in the context of European options using high-frequency transactions data. Prior studies look at this relationship for only American options using daily data. Pricing efficiency of the European option market using high-frequency data have not been studied in the prior literature. The authors find different results for the German market based on this high-frequency data set.