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The Information Content Of Implied Volatility Skewness And Kurtosis
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Book Synopsis The Information Content of Implied Volatility, Skewness and Kurtosis by : Patrick Navatte
Download or read book The Information Content of Implied Volatility, Skewness and Kurtosis written by Patrick Navatte and published by . This book was released on 2000 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: The implied standard deviation is widely believed to be the best available forecast of the volatility of the returns over the remaining contract life (Jorion 1995). In this paper, we generalize this result to the higher moments of the distribution (Skewness and Kurtosis) based on a Gram-Charlier series expansion of the normal distribution (Corrado and Su 1996) using long term CAC 40 option prices contract, named PXL. First, we find that implied first moments contain a substantial amount of information for realized future moments of CAC 40 returns although this amount is decreasing with respect to the moment's order. Second, we find that different shapes of the volatility smile are consistent with different distributions of the underlying returns. Based on these results, we also observe that including other implied moments significantly improve the out-of-sample pricing performance of the Black-Scholes (1973) model.
Book Synopsis The Information Content of Implied Skewness and Kurtosis Changes Prior to Earnings Announcements for Stock and Option Returns by : Dean Diavatopoulos
Download or read book The Information Content of Implied Skewness and Kurtosis Changes Prior to Earnings Announcements for Stock and Option Returns written by Dean Diavatopoulos and published by . This book was released on 2016 with total page 36 pages. Available in PDF, EPUB and Kindle. Book excerpt: We explore whether changes in stock return skewness and kurtosis, as implied in option prices preceding earnings announcements, provide information about subsequent stock and option returns through the announcement. We demonstrate that the change in skewness and kurtosis can be related to changing jump risk premiums, where jump risk can be associated with the uncertainty around the direction and size of the stock price response to the earnings announcement. As such, implied skewness (kurtosis) should capture the direction (magnitude) of a stock jump if option prices change as a result of changing jump risk size and intensity. Examining changes in implied skewness and kurtosis preceding over 74,000 earnings announcements for over 4700 firms, we find that both moments have strong predictive power for future stock returns, even after controlling for implied volatility. Additionally, changes in both moments predict call returns, while put return predictability is primarily linked to skewness. Thus, prior to earnings announcements, option prices contain information about future security returns.
Book Synopsis On the information content of volatility, skewness and kurtosis implied in option prices by : Gregorio Serna Calvo
Download or read book On the information content of volatility, skewness and kurtosis implied in option prices written by Gregorio Serna Calvo and published by . This book was released on 2001 with total page 50 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis On the Information Content of Volatility, Skewness and Kurtosis Implied in Options Prices by : Gregorio Serna Calvo
Download or read book On the Information Content of Volatility, Skewness and Kurtosis Implied in Options Prices written by Gregorio Serna Calvo and published by . This book was released on 2001 with total page 43 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Interpreting the Volatility Smile by : Steven A. Weinberg
Download or read book Interpreting the Volatility Smile written by Steven A. Weinberg and published by . This book was released on 2001 with total page 52 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis On the Dynamics and Information Content of Implied Volatility by : Bent Jesper Christensen
Download or read book On the Dynamics and Information Content of Implied Volatility written by Bent Jesper Christensen and published by . This book was released on 2008 with total page 52 pages. Available in PDF, EPUB and Kindle. Book excerpt: A new research design is introduced for the empirical analysis of the relationship between implied volatility and ex-post realized volatility. The dynamics of volatility are emphasized, and the analysis is cast in terms of non-overlapping data, so that exactly one implied and one realized volatility estimate pertain to each period under consideration. The conclusions from the empirical analysis when using our design are significantly different from those previously reached. Recent literature indicates that implied volatility contains little information about future volatility, beyond that contained in the history of realized volatility. We show that on the contrary, implied volatility efficiently predicts future realized volatility and in particular subsumes the information content of past realized volatility.
Book Synopsis Forecasting Volatility in the Financial Markets by : John L. Knight
Download or read book Forecasting Volatility in the Financial Markets written by John L. Knight and published by Butterworth-Heinemann. This book was released on 2002 with total page 428 pages. Available in PDF, EPUB and Kindle. Book excerpt: This text assumes that the reader has a firm grounding in the key principles and methods of understanding volatility measurement and builds on that knowledge to detail cutting edge modeling and forecasting techniques. It then uses a technical survey to explain the different ways to measure risk and define the different models of volatility and return.
Book Synopsis The Equity Premium and the Volatility Spread by : Bruno Feunou
Download or read book The Equity Premium and the Volatility Spread written by Bruno Feunou and published by . This book was released on 2009 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Forecasting Volatility in the Financial Markets by : Stephen Satchell
Download or read book Forecasting Volatility in the Financial Markets written by Stephen Satchell and published by Elsevier. This book was released on 2011-02-24 with total page 428 pages. Available in PDF, EPUB and Kindle. Book excerpt: Forecasting Volatility in the Financial Markets, Third Edition assumes that the reader has a firm grounding in the key principles and methods of understanding volatility measurement and builds on that knowledge to detail cutting-edge modelling and forecasting techniques. It provides a survey of ways to measure risk and define the different models of volatility and return. Editors John Knight and Stephen Satchell have brought together an impressive array of contributors who present research from their area of specialization related to volatility forecasting. Readers with an understanding of volatility measures and risk management strategies will benefit from this collection of up-to-date chapters on the latest techniques in forecasting volatility. Chapters new to this third edition:* What good is a volatility model? Engle and Patton* Applications for portfolio variety Dan diBartolomeo* A comparison of the properties of realized variance for the FTSE 100 and FTSE 250 equity indices Rob Cornish* Volatility modeling and forecasting in finance Xiao and Aydemir* An investigation of the relative performance of GARCH models versus simple rules in forecasting volatility Thomas A. Silvey - Leading thinkers present newest research on volatility forecasting - International authors cover a broad array of subjects related to volatility forecasting - Assumes basic knowledge of volatility, financial mathematics, and modelling
Book Synopsis The Oxford Handbook of Quantitative Asset Management by : Bernd Scherer
Download or read book The Oxford Handbook of Quantitative Asset Management written by Bernd Scherer and published by Oxford University Press. This book was released on 2012 with total page 530 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book explores the current state of the art in quantitative investment management across seven key areas. Chapters by academics and practitioners working in leading investment management organizations bring together major theoretical and practical aspects of the field.
Book Synopsis Handbook of Economic Forecasting by : Graham Elliott
Download or read book Handbook of Economic Forecasting written by Graham Elliott and published by Newnes. This book was released on 2013-08-23 with total page 719 pages. Available in PDF, EPUB and Kindle. Book excerpt: The highly prized ability to make financial plans with some certainty about the future comes from the core fields of economics. In recent years the availability of more data, analytical tools of greater precision, and ex post studies of business decisions have increased demand for information about economic forecasting. Volumes 2A and 2B, which follows Nobel laureate Clive Granger's Volume 1 (2006), concentrate on two major subjects. Volume 2A covers innovations in methodologies, specifically macroforecasting and forecasting financial variables. Volume 2B investigates commercial applications, with sections on forecasters' objectives and methodologies. Experts provide surveys of a large range of literature scattered across applied and theoretical statistics journals as well as econometrics and empirical economics journals. The Handbook of Economic Forecasting Volumes 2A and 2B provide a unique compilation of chapters giving a coherent overview of forecasting theory and applications in one place and with up-to-date accounts of all major conceptual issues. - Focuses on innovation in economic forecasting via industry applications - Presents coherent summaries of subjects in economic forecasting that stretch from methodologies to applications - Makes details about economic forecasting accessible to scholars in fields outside economics
Book Synopsis Inside Volatility Arbitrage by : Alireza Javaheri
Download or read book Inside Volatility Arbitrage written by Alireza Javaheri and published by John Wiley & Sons. This book was released on 2011-08-24 with total page 222 pages. Available in PDF, EPUB and Kindle. Book excerpt: Today?s traders want to know when volatility is a sign that the sky is falling (and they should stay out of the market), and when it is a sign of a possible trading opportunity. Inside Volatility Arbitrage can help them do this. Author and financial expert Alireza Javaheri uses the classic approach to evaluating volatility -- time series and financial econometrics -- in a way that he believes is superior to methods presently used by market participants. He also suggests that there may be "skewness" trading opportunities that can be used to trade the markets more profitably. Filled with in-depth insight and expert advice, Inside Volatility Arbitrage will help traders discover when "skewness" may present valuable trading opportunities as well as why it can be so profitable.
Book Synopsis The Forecasting Efficacy of Risk-Neutral Moments for Crude Oil Volatility by : Arjun Chatrath
Download or read book The Forecasting Efficacy of Risk-Neutral Moments for Crude Oil Volatility written by Arjun Chatrath and published by . This book was released on 2018 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper examines the information content of implied volatility for crude oil options as it relates to future realized volatility. Using data for the period 1996 to 2011 we find that implied volatility is an effective predictor of the month-ahead realized volatility. We show that implied volatility subsumes the information content of contemporaneous volatility, and it contains incremental information on future volatility after controlling for contemporaneous volatility. Furthermore, incorporating risk-neutral skewness, and especially kurtosis, improves the forecasting of realized volatility. Overall, the association between implied volatility and month-ahead realized volatility is consistent with evidence documented for other asset classes, leading us to conclude that implied volatility serves as a reasonable proxy for expected volatility.
Book Synopsis Option-Implied Risk-Neutral Distributions and Risk Aversion by : Jens Carsten Jackwerth
Download or read book Option-Implied Risk-Neutral Distributions and Risk Aversion written by Jens Carsten Jackwerth and published by . This book was released on 2008 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Is There Information in the Volatility Skew? by : James Doran
Download or read book Is There Information in the Volatility Skew? written by James Doran and published by . This book was released on 2009 with total page 43 pages. Available in PDF, EPUB and Kindle. Book excerpt: Since the 1987 crash, option prices have exhibited a strong negative skew, implying higher implied volatility for out-of-the-money puts than at- and in-the-money puts. This has resulted in incorporating multiple jumps and stochastic volatility within the data generating process to improve the Black-Scholes model in an attempt to capture negative skewness and a highly leptokurtic distribution. The general conclusion is that there is a large jump premium in the short-term, which best explains the significant negative skew for short maturity options. Alternative explanations for the negative skew are related to market liquidity driven by demand shocks and supply shortages. Regardless of the explanation for the negative skew, we assess the information content in the shape of the skew to infer if the option market can accurately forecast stock market crashes and/or spikes upward. We demonstrate, using all options on the Samp;P 100 from 1996-2002, that the shape of the skew can reveal with significant probability when the market will quot;crashquot; or quot;spikequot;. However, we find the magnitude of the spike prediction is not economically significant. Our findings are strongest for the short-term out-of-the money puts, consistent with the notion of investors' aversion to large negative movements. We also find that the power of the quot;crash/spike predictionquot; decreases with an increase in the time to option maturity.
Book Synopsis What Does Implied Volatility Skew Measure? by : Scott Mixon
Download or read book What Does Implied Volatility Skew Measure? written by Scott Mixon and published by . This book was released on 2019 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper provides theoretical guidance and empirical analysis aimed at differentiating among implied volatility skew measures. Industry analysts and academics use a variety of measures, but most have little formal justification. I find that most commonly used skew measures are difficult to interpret without controlling for the levels of both volatility and kurtosis. Many ad hoc measures fail to meet the conditions for a valid skewness ordering. My preferred measure is the (25 delta put volatility - 25 delta call volatility)/50 delta volatility; among the measures considered, it is the most descriptive and least redundant.
Download or read book Options Markets written by John C. Cox and published by Prentice Hall. This book was released on 1985 with total page 518 pages. Available in PDF, EPUB and Kindle. Book excerpt: Includes the first published detailed description of option exchange operations, the first published treatment using only elementary mathematics and the first step-by-step procedure for implementing the Black-Scholes formula in actual trading.
