Simulation of Volatility Trading using Nikkei Stock Index Option based on Stock Bulletin Board

2018 ◽  
Author(s):  
Kodai Sasaki ◽  
Yui Hirose ◽  
Eiichi Umehara ◽  
Hirohiko Suwa ◽  
Yuki Ogawa ◽  
...  
Keyword(s):  
Stock Index ◽  
Bulletin Board ◽  
Index Option

Do the Option Prices Forecast Spot Price? Evidence from the KOSPI 200 Index Option Market

2011 ◽  
Vol 19 (3) ◽  
pp. 251-280
Author(s):  
Byungwook Choi
Keyword(s):  
Implied Volatility ◽  
Parametric Method ◽  
Trading Strategy ◽  
Stock Index ◽  
Rate Of Return ◽  
Spot Price ◽  
Option Prices ◽  
Daily Rate ◽  
Risk Neutral ◽  
Index Option

This study investigates a forecasting power of volatility curvatures and risk neutral densities implicit in KOSPI 200 option prices by analyzing minute by minute historical index option intraday trading data from January of 2007 to January of 2011. We begin by estimating implied volatility functions and risk neutral price densities based on non-parametric method every minute and by calculating volatility curvature and skewness premium. We then compare the daily rate of return of the signal following trading strategy that we buy (sell) a stock index when the volatility curvature or skewness premium increases (decreases) with that of an intraday buy-and-hold strategy that we buy a stock index on 9:05AM and sell it on 2:50PM. We found that the rate of return of the signal following trading strategy was significantly higher than that of the intraday buy-and-hold strategy, which implies that the option prices have a strong forecasting power on the direction of stock market. Another finding is that the information contents of option prices disappear after three or four minutes.

CHANCE DISCOVERY IN STOCK INDEX OPTION AND FUTURES ARBITRAGE

2005 ◽  
Vol 01 (03) ◽  
pp. 435-447 ◽  
Author(s):  
EDWARD TSANG ◽  
SHERI MARKOSE ◽  
HAKAN ER
Keyword(s):  
Historical Data ◽  
Stock Index ◽  
Domain Experts ◽  
Programming Tool ◽  
Promising Tool ◽  
Arbitrage Opportunities ◽  
Out Of Sample ◽  
Computer Scientists ◽  
The One ◽  
Index Option

The prices of the option and futures of a stock both reflect the market's expectation of futures changes of the stock's price. Their prices normally align with each other within a limited window. When they do not, arbitrage opportunities arise: an investor who spots the misalignment will be able to buy (sell) options on the one hand, and sell (buy) futures on the other and make risk-free profits. Historical data suggest that option and futures prices on the LIFFE Market do not align occasionally. Arbitrage chances are rare. Besides, they last for seconds only before the market adjusts itself. The challenge is not only to discover such chances, but to discover them ahead of other arbitragers. In the past, we have introduced EDDIE as a genetic programming tool for forecasting. This paper describes EDDIE-ARB, a specialization of EDDIE, for forecasting arbitrage opportunities. As a tool, EDDIE-ARB was designed to enable economists and computer scientists to work together to identify relevant independent variables. Trained on historical data, EDDIE-ARB was capable of discovering rules with high precision. Tested on out-of-sample data, EDDIE-ARB out-performed a naive ex ante rule, which reacted only when misalignments were detected. This establishes EDDIE-ARB as a promising tool for arbitrage chances discovery. It also demonstrates how EDDIE brings domain experts and computer scientists together.

Who Offers Liquidity on Options Markets when Volatility is High?

2012 ◽  
Vol 15 (04) ◽  
pp. 1250021 ◽  
Author(s):  
Matthew C. Chang ◽  
Chung-Fern Wu
Keyword(s):  
Option Price ◽  
Stock Index ◽  
Order Book ◽  
Options Markets ◽  
Option Markets ◽  
Market Makers ◽  
Liquidity Provision ◽  
Professional Market ◽  
Index Option ◽  
The Relationship

In this paper, we investigate the relationship between volatility of and liquidity provision through the aggregation of high-frequency data on the stock index option markets of Taiwan. Strong evidence shows the different behaviors of liquidity supply for market makers and nonmarket makers. In addition, evidence demonstrates that nonmarket makers are unwilling to offer liquidity on buy-side when option price is high, but the phenomena are not evident for the market makers. Overall, nonmarket makers provide less liquidity when volatility is high. In contrast, market makers provide the same or more liquidity on the limit order book when volatility is high. Therefore, the market makers play more important a role when market is volatile. The policy implication is that professional market makers on option markets are stable forces to offer liquidity when market is volatile, and it is referable for those pure order-driven option markets without market makers (e.g., Korea Exchange, KRX).

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