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Volatilities implied by price changes in the S&P 500 options and futures contracts

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  • Jitka Hilliard
  • Wei Li

Abstract

We develop a new volatility measure: the volatility implied by price changes in option contracts and their underlying. We refer to this as price-change implied volatility. We compare moneyness and maturity effects of price-change and implied volatilities, and their performance in delta hedging. We find that delta hedges based on a price-change implied volatility surface outperform hedges based on the traditional implied volatility surface when applied to S&P 500 future options. Copyright Springer Science+Business Media New York 2014

Suggested Citation

  • Jitka Hilliard & Wei Li, 2014. "Volatilities implied by price changes in the S&P 500 options and futures contracts," Review of Quantitative Finance and Accounting, Springer, vol. 42(4), pages 599-626, May.
    • Handle: RePEc:kap:rqfnac:v:42:y:2014:i:4:p:599-626
    DOI: 10.1007/s11156-013-0354-z
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    More about this item

    Keywords

    Price-change implied volatility; Implied volatility; S&P 500 options and futures contracts; Delta hedging; G13; C61;
    All these keywords.

    JEL classification:

    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis

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