Is volatility risk priced in the KOSPI 200 index options market?

2009 ◽  
Vol 29 (9) ◽  
pp. 797-825 ◽  
Author(s):  
Sun-Joong Yoon ◽  
Suk Joon Byun
Keyword(s):  
Options Market ◽  
Index Options ◽  
Volatility Risk

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

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.

The Volatility Risk Premium in the KOSPI200 Index Options

2009 ◽  
Vol 17 (2) ◽  
pp. 67-86
Author(s):  
Hyoung-Jin Park
Keyword(s):  
Risk Premium ◽  
Empirical Method ◽  
Option Prices ◽  
Options Market ◽  
Index Options ◽  
Volatility Risk ◽  
Put Options ◽  
Volatility Risk Premium ◽  
Bid Ask Spread ◽  
Delta Hedging

This study examines whether the volatility risk premium is reflected on the prices of the KOSPI200 index options. By applying the empirical method of Bakshi and Kapadia (2003), we analyze the performance of delta-hedging strategy in the KOSPI200 index market. They showed the existence of the negative volatility risk premium in the S&P 500 index options as well as derived theoretical positive relationship between the volatility risk premium and delta-hedging gains. However, in the results of this study, contrary to those in the S&P 500 index options market, we do not observe the volatility risk premium. Delta-hedged gains of ATM options are not significantly negative. Delta-hedged gains are not more negative as historical volatility increases and as options' vega and remaining maturity increase. However, the notable finding of this study is that delta-hedged gains of OTM options and put options are negative and signigicant. This results can be caused by the phenomenon of overpriced puts or by market microstructure factors, such as relatively wide bid-ask spread and high tick size. In a simple examination of comparison between changes in traded option prices and changes in the Black-Scholes option prices during delta-hedging period, negative delta-hedged gains seem to be attributed to too small changes in call option prices and too large changes in put option prices. In conclusion, by analyzing the delta-hedged gains, the volatility risk risk premium seems not be observed in the KOSPI200 index options market.

Pairs Trading In The index Options Market

2021 ◽  
Author(s):  
Marianna Brunetti ◽  
Roberta De Luca
Keyword(s):  
Options Market ◽  
Pairs Trading ◽  
Index Options

scholarly journals Determinants of Violations in the SET50 Index Options Pricing Relationships: Put-Call-Futures Parity and Box Spread Tests

2018 ◽  
Vol 14 (3) ◽  
pp. 1 ◽  
Author(s):  
Woradee Jongadsayakul
Keyword(s):  
Transaction Costs ◽  
Risk Premium ◽  
Tobit Model ◽  
Options Pricing ◽  
Options Market ◽  
Index Options ◽  
Exercise Price ◽  
Daily Data ◽  
Before And After ◽  
Contract Specification

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.

scholarly journals Predictability of OTC Option Volatility for Future Stock Volatility

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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