The Change of Liquidity Premium Caused by a New Multiplier Regulation in the KOSPI200 Index Options Market

Although SET50 Index Options, the only option product on Thailand Futures Exchange, has been traded since October 29, 2007, it has faced the liquidity problem. The SET50 Index Options market must offer a risk premium to compensate investors for liquidity risk. It may cause violations in options pricing relationships. This research therefore uses daily data from October 29, 2007 to December 30, 2016 to compare the violations in SET50 Index Options pricing relationships before and after change in contract specification on October 29, 2012 and investigate determinants of these violations using Tobit model. Two tests of SET50 Index Options pricing relationships, Put-Call-Futures Parity and Box Spread, are employed. The test results of Put-Call-Futures Parity show that the percentage and baht amount of violations in many cases are greater in the period before the modification of SET50 Index Options. Without transaction costs, we also see more Box Spread violations before contract adjustment. However, after taking transaction costs into account, there are more percentage and baht amount of Box Spread violations in the later time period. The estimation of Tobit model shows that the violation sizes of both Put-Call-Futures Parity and Box Spread, excluding transaction costs, depend on the liquidity of SET50 Index Options market measured by option moneyness and open interest. The SET50 Index Options contract specification, especially exercise price, also significantly affects the size of violations, though the direction of a relationship is not cleared.

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Volatility information trading in the index options market: An intraday analysis

International Review of Economics & Finance ◽

10.1016/j.iref.2019.07.006 ◽

2019 ◽

Vol 64 ◽

pp. 412-426 ◽

Cited By ~ 5

Author(s):

Heejin Yang ◽

Ali M. Kutan ◽

Doojin Ryu

Keyword(s):

Options Market ◽

Index Options ◽

Intraday Analysis

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Predictability of OTC Option Volatility for Future Stock Volatility

Sustainability ◽

10.3390/su12125200 ◽

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.

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Information Content of Adjusted Implied Volatility in the KOSPI 200 Index Options Market

Journal of Derivatives and Quantitative Studies ◽

10.1108/jdqs-04-2009-b0003 ◽

2009 ◽

Vol 17 (4) ◽

pp. 75-103

Author(s):

Byung Jin Kang ◽

Sohyun Kang ◽

Sun-Joong Yoon

Keyword(s):

Implied Volatility ◽

Risk Premia ◽

Risk Averse ◽

Options Market ◽

Jump Risk ◽

Index Options ◽

Volatility Risk ◽

Model Free ◽

Volatility Model ◽

Forecasting Errors

This study examines the forecasting ability of the adjusted implied volatility (AIV), which is suggested by Kang, Kim and Yoon (2009), using the horserace competition with historical volatility, model-free implied volatility, and BS implied volatility in the KOSPI 200 index options market. The adjusted implied volatility is applicable when investors are not risk averse or when underlying returns do not follow a normal distribution. This implies that AIV is consistent with the presence of risk premia for other risk such as volatility risk and jump risk. Using KOSPI 200 index options, it is shown that the AIV outperforms other volatility estimates in terms of the unbiasedness for future realized volatilities as well as the forecasting errors.

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Strategies for Improving V-KOSPI 200 Index

Journal of Derivatives and Quantitative Studies ◽

10.1108/jdqs-01-2019-b0001 ◽

2019 ◽

Vol 27 (1) ◽

pp. 1-47

Author(s):

Tae-Hun Kang

Keyword(s):

Time Frame ◽

Options Market ◽

Direct Solution ◽

Market Making ◽

Index Options ◽

Market Prices ◽

Target Time ◽

Variability Level ◽

Index Option

The study examines not only the methods for eliminating stale or abnormal prices but also strategies for enhancing liquidity in the KOSPI 200 index options market, for compensating the defects of V-KOSPI 200. First, introducing market making scheme in the KOSPI 200 options market can be the direct solution to prevent temporary fluctuations and spikes of the index arising from abnormal orders and to alleviate unnatural low variability (level) of the index through decreasing the use of stale market prices (model prices). Second, if weekly options underlying KOSPI 200 index are available for trading and investor interest in the weeklys are surged, Korea Exchange can enhance V-KOSPI 200 to include series of KOSPI 200 weekly options. The inclusion for at least 5~6 weekly options available for trading allow V-KOSPI 200 to be calculated with KOSPI 200 index option series that most precisely match the 30-day target time-frame for expected volatility that the Index is intended to represent. Along with these strategies for enhancing liquidity in the KOSPI 200 index options market, the study suggests the methodology which can prevents temporary fluctuations and spikes of the index by substituting stale or abnormal prices for normal prices.

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Skewness of Kurtosis?: Using Corrado and Su (1996)‘s Model

Journal of Derivatives and Quantitative Studies ◽

10.1108/jdqs-01-2008-b0001 ◽

2008 ◽

Vol 16 (1) ◽

pp. 1-20

Author(s):

Sol Kim

Keyword(s):

Options Market ◽

Index Options ◽

Pricing Options ◽

Risk Neutral ◽

Out Of Sample ◽

S Model ◽

Skewness And Kurtosis

For the KOSPI 200 index options market. we examine the power of influence on pricing options of the skewness and the kurtosis of the risk neutral distribution. We compare the Black and Scholes (1973) model which does not consider the skewness or the kurtosis of the risk neutral distribution with Corrado and sue 1996)’s model which consider both the skewness and the kurtosis and the models which consider only the skewness or the kurtosis. It is found that Corrado and sue 1996)‘s model which consider both skewness and kurtosis shows the best performance closely followed by the model which consider only the skewness for tile in-sample pricing and the out-of-sample pricing. As a result. it contributes to pricing options to consider both skewness and kurtosis and the skewness is more important factor for pricing options than the kurtosis.

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