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Volatility Dynamics For The Sp500
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Book Synopsis Jump and Volatility Dynamics for the S&P 500 by : Hanxue Yang
Download or read book Jump and Volatility Dynamics for the S&P 500 written by Hanxue Yang and published by . This book was released on 2016 with total page 34 pages. Available in PDF, EPUB and Kindle. Book excerpt: Relatively little is known about the empirical performance of infinite-activity Levy jump models, especially with non-affine volatility dynamics. We use extensive empirical data sets to study how infinite-activity Variance Gamma and Normal Inverse Gaussian jumps with affine and non-affine volatility dynamics improve goodness of fit and option pricing performance. With Markov Chain Monte Carlo, different model specifications are estimated using the joint information of the S&P 500 index and the VIX. Our paper provides clear evidence that a parsimonious non-affine model with Normal Inverse Gaussian return jumps and a linear variance specification is particularly competitive, even during the recent crisis.
Book Synopsis Models for S&P 500 Dynamics by : Peter Christoffersen
Download or read book Models for S&P 500 Dynamics written by Peter Christoffersen and published by . This book was released on 2009 with total page 39 pages. Available in PDF, EPUB and Kindle. Book excerpt: Most recent empirical option valuation studies build on the affine square root (SQR) stochastic volatility model. The SQR model is a convenient choice, because it yields closed-form solutions for option prices. However, relatively little is known about the resulting biases. We investigate alternatives to the SQR model, by comparing its empirical performance with that of five different but equally parsimonious stochastic volatility models. We provide empirical evidence from three different sources. We first use realized volatilities to assess the properties of the SQR model and to guide us in the search for alternative specifications. We then estimate the models using maximum likelihood on Samp;P 500 returns. Finally, we employ nonlinear least squares on a panel of option data. In comparison with earlier studies that explicitly solve the filtering problem, we analyze a more comprehensive option data set. The scope of our analysis is feasible because of our use of the particle filter. The three sources of data we employ all point to the same conclusion: the SQR model is misspecified. Overall, the best of the alternative volatility specifications is a model with linear rather than square root diffusion for variance which we refer to as the VAR model. This model captures the stylized facts in realized volatilities, it performs well in fitting various samples of index returns, and it has the lowest option implied volatility mean squared errors in- and out-of-sample.
Book Synopsis Inferring Volatility Dynamics and Risk Premia from the S&P 500 and VIX Markets by : Chris Bardgett
Download or read book Inferring Volatility Dynamics and Risk Premia from the S&P 500 and VIX Markets written by Chris Bardgett and published by . This book was released on 2017 with total page 69 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper shows that the VIX market contains information that is not already contained by the S&P 500 market on the variance of the S&P 500 returns. We estimate a flexible affine model based on a joint time series of underlying indexes and option prices on both markets. We find that including VIX option prices in the model estimation allows better identification of the parameters driving the risk-neutral conditional distributions and term structure of volatility, thereby enhancing the estimation of the variance risk premium. We gain new insights on the properties of the premium's term structure and show how they can be used to form trading signals. Finally, our premium has better predictive power than the usual model-free estimate and the higher-order moments of its term structure allow improving forecasts of S&P 500 returns.
Book Synopsis The Dynamics of the S&P 500 Implied Volatility Surface by : George S. Skiadopoulos
Download or read book The Dynamics of the S&P 500 Implied Volatility Surface written by George S. Skiadopoulos and published by . This book was released on 2000 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This empirical study is motivated by the literature on quot;smile-consistentquot; arbitrage pricing with stochastic volatility. We investigate the number and shape of shocks that move implied volatility smiles and surfaces by applying Principal Components Analysis. Two components are identified under a variety of criteria. Subsequently, we develop a quot;Procrustesquot; type rotation in order to interpret the retained components. The results have implications for both option pricing and hedging and for the economics of option pricing.
Book Synopsis Volatility Dynamics for the S&P500 by : Peter Christoffersen
Download or read book Volatility Dynamics for the S&P500 written by Peter Christoffersen and published by . This book was released on 2009 with total page 49 pages. Available in PDF, EPUB and Kindle. Book excerpt: Most recent empirical option valuation studies build on the affine square root (SQR) stochastic volatility model. The SQR model is a convenient choice, because it yields closed-form solutions for option prices. However, relatively little is known about the resulting biases.We investigate alternatives to the SQR model, by comparing its empirical performance with that of five different but equally parsimonious stochastic volatility models. We provide empirical evidence from three different sources: realized volatilities, Samp;P500 returns, and an extensive panel of option data. The three sources of data we employ all point to the same conclusion: the SQR model is misspecified. The best of the alternative volatility specifications is a model with linear rather than square root diffusion for variance, which we refer to as the VAR model. This model captures the stylized facts in realized volatilities, it performs well in fitting various samples of index returns, and it has the lowest option implied volatility mean squared error in- and out-of-sample. It fits the option data better than the SQR model in several dimensions: it improves the fit of at-the-money options, and it provides a more realistic volatility term structure and implied volatility smirk.
Book Synopsis Predictable Dynamics in the S&P 500 Index Options Implied Volatility Surface by : Sílvia Gonçalves
Download or read book Predictable Dynamics in the S&P 500 Index Options Implied Volatility Surface written by Sílvia Gonçalves and published by . This book was released on 2007 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: One key stylized fact in the empirical option pricing literature is the existence of an implied volatility surface (IVS). The usual approach consists of fitting a linear model linking the implied volatility to the time to maturity and the moneyness, for each cross section of options data. However, recent empirical evidence suggests that the parameters characterizing the IVS change over time. In this paper, we study whether the resulting predictability patterns in the IVS coefficients may be exploited in practice. We propose a two-stage approach to modeling and forecasting the Samp;P 500 index options IVS. In the first stage, we model the surface along the cross-sectional moneyness and time-to-maturity dimensions, similarly to Dumas, et. al., (1998). In the second-stage, we model the dynamics of the cross-sectional first-stage implied volatility surface coefficients by means of vector autoregression models. We find that not only the Samp;P 500 implied volatility surface can be successfully modeled, but also that its movements over time are highly predictable in a statistical sense. We then examine the economic significance of this statistical predictability with mixed findings. Whereas profitable delta-hedged positions can be set up that exploit the dynamics captured by the model under moderate transaction costs and when trading rules are selective in terms of expected gains from the trades, most of this profitability disappears when we increase the level of transaction costs and trade multiple contracts off wide segments of the IVS. This suggests that predictability of the time-varying Samp;P 500 implied volatility surface may be not inconsistent with market efficiency.
Book Synopsis The Fine Structure of Equity-Index Option Dynamics by : Torben G. Andersen
Download or read book The Fine Structure of Equity-Index Option Dynamics written by Torben G. Andersen and published by . This book was released on 2015 with total page 33 pages. Available in PDF, EPUB and Kindle. Book excerpt: We analyze the high-frequency dynamics of S&P 500 equity-index option prices by constructing an assortment of implied volatility measures. This allows us to infer the underlying fine structure behind the innovations in the latent state variables driving the evolution of the volatility surface. In particular, we focus attention on implied volatilities covering a wide range of moneyness (strike/underlying stock price), which load differentially on the different latent state variables. We conduct a similar analysis for high-frequency observations on the VIX volatility index as well as on futures written on it. We find that the innovations over small time scales in the risk-neutral intensity of the negative jumps in the S&P 500 index, which is the dominant component of the short-maturity out-of-the-money put implied volatility dynamics, are best described via non-Gaussian shocks, i.e., jumps. On the other hand, the innovations over small time scales of the diffusive volatility, which is the dominant component in the short-maturity at-the-money option implied volatility dynamics, are best modeled as Gaussian with occasional jumps.
Book Synopsis Implied Volatility Dynamics Among Exchange-Traded Funds and Their Largest Component Stocks by : Timothy A. Krause
Download or read book Implied Volatility Dynamics Among Exchange-Traded Funds and Their Largest Component Stocks written by Timothy A. Krause and published by . This book was released on 2016 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This article examines the presence of common factors in the evolution of stock option implied volatilities. We analyze the implied volatilities of ETF options and their largest component stocks, and the results strongly suggest the presence of both a market volatility factor and an industry volatility factor. In a cross-section of nine popular industry ETFs, the average volatility “betas” for the industry factors are equal to about one third of the value of the market factor beta. Additionally, implied volatility reverts more strongly to industry long-term averages than it does to a market measure of volatility. Traders, market-makers, and investors may reduce hedging errors by using options on these industry-related products in addition to market-based volatilityproducts. The drivers of implied volatility spillovers from ETFs to component stocks vary across industries, but the spillovers are most strongly related to turnover in S&P 500 ETF options and those of SPDR industry sector ETFs. Additional important factors in the volatility generating process include deviations from net asset value, ETF flow of funds, and ETF market capitalization.
Book Synopsis Can We Forecast the Implied Volatility Surface Dynamics of Equity Options? Predictability and Economic Value Tests by : Alejandro Bernales
Download or read book Can We Forecast the Implied Volatility Surface Dynamics of Equity Options? Predictability and Economic Value Tests written by Alejandro Bernales and published by . This book was released on 2013 with total page 40 pages. Available in PDF, EPUB and Kindle. Book excerpt: We examine whether the dynamics of the implied volatility surface of individual equity options contains exploitable predictability patterns. Predictability in implied volatilities is expected due to the learning behavior of agents in option markets. In particular, we explore the possibility that the dynamics of the implied volatility surface of individual equity options may be associated with movements in the volatility surface of S&P 500 index options. We present evidence of strong predictable features in the cross-section of equity options and of dynamic linkages between the implied volatility surfaces of equity options and S&P 500 index options. Moreover, time-variations in stock option volatility surfaces are best predicted by incorporating information from the dynamics in the implied volatility surface of S&P 500 index options. We analyze the economic value of such dynamic patterns using strategies that trade straddle and delta-hedged portfolios, and we find that before transaction costs such strategies produce abnormal risk-adjusted returns.
Book Synopsis Option Market (In)efficiency and Implied Volatility Dynamics After Return Jumps by : Juho Kanniainen
Download or read book Option Market (In)efficiency and Implied Volatility Dynamics After Return Jumps written by Juho Kanniainen and published by . This book was released on 2019 with total page 28 pages. Available in PDF, EPUB and Kindle. Book excerpt: In informationally efficient financial markets, option prices and this implied volatility should immediately be adjusted to new information that arrives along with a jump in underlying's return, whereas gradual changes in implied volatility would indicate market inefficiency. Using minute-by-minute data on S&P 500 index options, we provide evidence regarding delayed and gradual movements in implied volatility after the arrival of return jumps. These movements are directed and persistent, especially in the case of negative return jumps. Our results are significant when the implied volatilities are extracted from at-the-money options and out-of-the-money puts, while the implied volatility obtained from out-of-the-money calls converges to its new level immediately rather than gradually. Thus, our analysis reveals that the implied volatility smile is adjusted to jumps in underlying's return asymmetrically. Finally, it would be possible to have statistical arbitrage in zero-transaction-cost option markets, but under actual option price spreads, our results do not imply abnormal option returns.
Book Synopsis S&P 500 Cash Stock Price Volatilities by : Lawrence Harris
Download or read book S&P 500 Cash Stock Price Volatilities written by Lawrence Harris and published by . This book was released on 1989 with total page 50 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Can Standard Preferences Explain the Prices of Out of the Money S&P 500 Put Options by : Luca Benzoni
Download or read book Can Standard Preferences Explain the Prices of Out of the Money S&P 500 Put Options written by Luca Benzoni and published by . This book was released on 2005 with total page 62 pages. Available in PDF, EPUB and Kindle. Book excerpt: Prior to the stock market crash of 1987, Black-Scholes implied volatilities of S & P 500 index options were relatively constant across moneyness. Since the crash, however, deep out-of-the-money S & P 500 put options have become 'expensive' relative to the Black-Scholes benchmark. Many researchers (e.g., Liu, Pan and Wang (2005)) have argued that such prices cannot be justified in a general equilibrium setting if the representative agent has 'standard preferences' and the endowment is an i.i.d. process. Below, however, we use the insight of Bansal and Yaron (2004) to demonstrate that the 'volatility smirk' can be rationalized if the agent is endowed with Epstein-Zin preferences and if the aggregate dividend and consumption processes are driven by a persistent stochastic growth variable that can jump. We identify a realistic calibration of the model that simultaneously matches the empirical properties of dividends, the equity premium, the prices of both at-the-money and deep out-of-the-money puts, and the level of the risk-free rate. A more challenging question (that to our knowledge has not been previously investigated) is whether one can explain within a standard preference framework the stark regime change in the volatility smirk that has maintained since the 1987 market crash. To this end, we extend the model to a Bayesian setting in which the agent updates her beliefs about the average jump size in the event of a jump. Note that such beliefs only update at crash dates, and hence can explain why the volatility smirk has not diminished over the last eighteen years. We find that the model can capture the shape of the implied volatility curve both pre- and post-crash while maintaining reasonable estimates for expected returns, price-dividend ratios, and risk-free rates.
Book Synopsis The Causal Relationship between the S&P 500 and the VIX Index by : Florian Auinger
Download or read book The Causal Relationship between the S&P 500 and the VIX Index written by Florian Auinger and published by Springer. This book was released on 2015-02-13 with total page 102 pages. Available in PDF, EPUB and Kindle. Book excerpt: Florian Auinger highlights the core weaknesses and sources of criticism regarding the VIX Index as an indicator for the future development of financial market volatility. Furthermore, it is proven that there is no statistically significant causal relationship between the VIX and the S&P 500. As a consequence, the forecastability is not given in both directions. Obviously, there must be at least one additional variable that has a strong influence on market volatility such as emotions which, according to financial market experts, are considered to play a more and more important role in investment decisions.
Book Synopsis Predictable Dynamics in the S & P 500 Index Options Implied Volatility Surface by : Silvia Goncalves
Download or read book Predictable Dynamics in the S & P 500 Index Options Implied Volatility Surface written by Silvia Goncalves and published by . This book was released on 2005 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Stock Market Volatility Dynamics by : Maxime Bonelli
Download or read book Stock Market Volatility Dynamics written by Maxime Bonelli and published by . This book was released on 2016 with total page 59 pages. Available in PDF, EPUB and Kindle. Book excerpt: We present a two-factor volatility model to study the impact of news arrival and trading volume on stock returns variance. The model can explicitly account for the association between volatility and volume, as well as the persistence in equity variance. Unlike the standard "Mixture of Distribution Hypothesis", the conditional variance is governed by the stochastic information arrival and adds a persistent GARCH component, in order to disentangle transient from persistent volatility variations. The common observation that large volumes are associated with high volatility is explained by the fact that unexpected shocks in volume increase volatility, which is not the case for expected volumes of trading. Furthermore, the persistence of volatility is essentially unrelated to volume implying that the latter does not explain ARCH effect. Finally, we find that unexpected shocks in volume and the persistent GARCH component are both main drivers of volatility dynamics.
Book Synopsis Forecasting Volatility and Option Prices of the S&P 500 Index by : Jaesun Noh
Download or read book Forecasting Volatility and Option Prices of the S&P 500 Index written by Jaesun Noh and published by . This book was released on 1994 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis The Volatility Process by : Alireza Javaheri
Download or read book The Volatility Process written by Alireza Javaheri and published by . This book was released on 2007 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
