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The economic significance of conditional skewness in index option markets

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  • Ranjini Jha
  • Madhu Kalimipalli

Abstract

This study examines whether conditional skewness forecasts of the underlying asset returns can be used to trade profitably in the index options market. The results indicate that a more general skewness‐based option‐pricing model can generate better trading performance for strip and strap trades. The results show that conditional skewness model forecasts, when combined with forward‐looking option implied volatilities, can significantly improve the performance of skewness‐based trades but trading costs considerably weaken the profitability of index option strategies. © 2009 Wiley Periodicals, Inc. Jrl Fut Mark 30:378–406, 2010

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  • Ranjini Jha & Madhu Kalimipalli, 2010. "The economic significance of conditional skewness in index option markets," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 30(4), pages 378-406, April.
    • Handle: RePEc:wly:jfutmk:v:30:y:2010:i:4:p:378-406
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    Cited by:

    1. Chateau, Jean-Pierre D., 2011. "Contribution à la réglementation de Bâle-3 : de la consistance interne du continuum du crédit commercial en marquant à la « valeur de modèle » le risque de crédit des engagements de crédit," L'Actualité Economique, Société Canadienne de Science Economique, vol. 87(4), pages 445-479, décembre.
    2. Stanislav Anatolyev & Anton Petukhov, 2016. "Uncovering the Skewness News Impact Curve," Journal of Financial Econometrics, Oxford University Press, vol. 14(4), pages 746-771.

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