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

This study aims to investigate the implied adjusted volatility functions using the 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 i...

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Main Authors:	Harun, Hanani Farhah, Abdullah, Mimi Hafizah
Format:	Article
Language:	English
Published:	American Institute of Physics 2015
Subjects:	HG Finance QA Mathematics
Online Access:	http://irep.iium.edu.my/49444/ http://irep.iium.edu.my/49444/ http://irep.iium.edu.my/49444/ http://irep.iium.edu.my/49444/1/Implied_adjusted_volatility_functions_Empirical_evidence.pdf

id	iium-49444
recordtype	eprints
spelling	iium-494442019-05-24T02:42:52Z http://irep.iium.edu.my/49444/ Implied adjusted volatility functions: Empirical evidence from Australian index option market Harun, Hanani Farhah Abdullah, Mimi Hafizah HG Finance QA Mathematics This study aims to investigate the implied adjusted volatility functions using the 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 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 postcrisis periods. 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. American Institute of Physics 2015-02-03 Article PeerReviewed application/pdf en http://irep.iium.edu.my/49444/1/Implied_adjusted_volatility_functions_Empirical_evidence.pdf Harun, Hanani Farhah and Abdullah, Mimi Hafizah (2015) Implied adjusted volatility functions: Empirical evidence from Australian index option market. AIP Conference Proceedings , 1643. pp. 622-627. ISSN 0094-243X E-ISSN 1551-7616 http://dx.doi.org/10.1063/1.4907503 http://dx.doi.org/10.1063/1.4907503
repository_type	Digital Repository
institution_category	Local University
institution	International Islamic University Malaysia
building	IIUM Repository
collection	Online Access
language	English
topic	HG Finance QA Mathematics
spellingShingle	HG Finance QA Mathematics Harun, Hanani Farhah Abdullah, Mimi Hafizah Implied adjusted volatility functions: Empirical evidence from Australian index option market
description	This study aims to investigate the implied adjusted volatility functions using the 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 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 postcrisis periods. 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	Article
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
publisher	American Institute of Physics
publishDate	2015
url	http://irep.iium.edu.my/49444/ http://irep.iium.edu.my/49444/ http://irep.iium.edu.my/49444/ http://irep.iium.edu.my/49444/1/Implied_adjusted_volatility_functions_Empirical_evidence.pdf
first_indexed	2023-09-18T21:09:55Z
last_indexed	2023-09-18T21:09:55Z
_version_	1777411183618293760

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

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