Implied adjusted volatility functions: empirical evidence from Australian index option market

With the implied volatility as a significant aspect particularly in option valuation, and given the fact that the pricing biases of Leland option pricing models and the implied volatility structure of the option are related, this study primarily aims to investigate the implied adjusted volatility fu...

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Main Authors:	Harun, Hanani Farhah, Abdullah, Mimi Hafizah
Format:	Conference or Workshop Item
Language:	English
Published:	2014
Subjects:	HA Statistics HG Finance QA Mathematics
Online Access:	http://irep.iium.edu.my/38358/ http://irep.iium.edu.my/38358/ http://irep.iium.edu.my/38358/1/Binder1.pdf

id	iium-38358
recordtype	eprints
spelling	iium-383582015-01-08T03:48:23Z http://irep.iium.edu.my/38358/ Implied adjusted volatility functions: empirical evidence from Australian index option market Harun, Hanani Farhah Abdullah, Mimi Hafizah HA Statistics HG Finance QA Mathematics With the implied volatility as a significant aspect particularly in option valuation, and given the fact that the pricing biases of Leland option pricing models and the implied volatility structure of the option are related, this study primarily aims to investigate the implied adjusted volatility functions using different Leland option pricing models and to assess whether the use of the specified implied adjusted volatility function can lead to an improvement in option valuation accuracy. The implied adjusted volatility is investigated in the context of Standard and Poor/Australian Stock Exchange (S&P/ASX) 200 index options over the course of 2001-2010, which covers the global financial crisis in the mid-2007 until the end of 2008. Both in- and out-of-sample resulted in approximately similar pricing error along the different Leland’s models. Results indicate that symmetric and asymmetric models of both moneyness ratio and logarithmic transformation of moneyness provide the overall best result in both during and post-crisis periods, respectively. We find that in the different period of interval (pre-, during and post-crisis) is subject to a different implied adjusted volatility function which best explains the index options. Hence, it is tremendously important to identify the intervals beforehand in investigating the implied adjusted volatility function. 2014 Conference or Workshop Item PeerReviewed application/pdf en http://irep.iium.edu.my/38358/1/Binder1.pdf Harun, Hanani Farhah and Abdullah, Mimi Hafizah (2014) Implied adjusted volatility functions: empirical evidence from Australian index option market. In: The 2nd ISM International Statistical Conference 2014 with Applications in Sciences and Engineering (ISM-II) , 12th -14th August 2014, Kuantan, Pahang. http://ism2.ump.edu.my/
repository_type	Digital Repository
institution_category	Local University
institution	International Islamic University Malaysia
building	IIUM Repository
collection	Online Access
language	English
topic	HA Statistics HG Finance QA Mathematics
spellingShingle	HA Statistics HG Finance QA Mathematics Harun, Hanani Farhah Abdullah, Mimi Hafizah Implied adjusted volatility functions: empirical evidence from Australian index option market
description	With the implied volatility as a significant aspect particularly in option valuation, and given the fact that the pricing biases of Leland option pricing models and the implied volatility structure of the option are related, this study primarily aims to investigate the implied adjusted volatility functions using different Leland option pricing models and to assess whether the use of the specified implied adjusted volatility function can lead to an improvement in option valuation accuracy. The implied adjusted volatility is investigated in the context of Standard and Poor/Australian Stock Exchange (S&P/ASX) 200 index options over the course of 2001-2010, which covers the global financial crisis in the mid-2007 until the end of 2008. Both in- and out-of-sample resulted in approximately similar pricing error along the different Leland’s models. Results indicate that symmetric and asymmetric models of both moneyness ratio and logarithmic transformation of moneyness provide the overall best result in both during and post-crisis periods, respectively. We find that in the different period of interval (pre-, during and post-crisis) is subject to a different implied adjusted volatility function which best explains the index options. Hence, it is tremendously important to identify the intervals beforehand in investigating the implied adjusted volatility function.
format	Conference or Workshop Item
author	Harun, Hanani Farhah Abdullah, Mimi Hafizah
author_facet	Harun, Hanani Farhah Abdullah, Mimi Hafizah
author_sort	Harun, Hanani Farhah
title	Implied adjusted volatility functions: empirical evidence from Australian index option market
title_short	Implied adjusted volatility functions: empirical evidence from Australian index option market
title_full	Implied adjusted volatility functions: empirical evidence from Australian index option market
title_fullStr	Implied adjusted volatility functions: empirical evidence from Australian index option market
title_full_unstemmed	Implied adjusted volatility functions: empirical evidence from Australian index option market
title_sort	implied adjusted volatility functions: empirical evidence from australian index option market
publishDate	2014
url	http://irep.iium.edu.my/38358/ http://irep.iium.edu.my/38358/ http://irep.iium.edu.my/38358/1/Binder1.pdf
first_indexed	2023-09-18T20:55:06Z
last_indexed	2023-09-18T20:55:06Z
_version_	1777410251199348736

Implied adjusted volatility functions: empirical evidence from Australian index option market

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