Liquidity considerations in estimating implied volatility
Author
Abstract
Suggested Citation
Download full text from publisher
Other versions of this item:
- Rohini Grover & Susan Thomas, 2012. "Liquidity Considerations in Estimating Implied Volatility," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 32(8), pages 714-741, August.
References listed on IDEAS
- Mark Britten‐Jones & Anthony Neuberger, 2000. "Option Prices, Implied Price Processes, and Stochastic Volatility," Journal of Finance, American Finance Association, vol. 55(2), pages 839-866, April.
- Andersen T. G & Bollerslev T. & Diebold F. X & Labys P., 2001. "The Distribution of Realized Exchange Rate Volatility," Journal of the American Statistical Association, American Statistical Association, vol. 96, pages 42-55, March.
- Menachem Brenner & Rafi Eldor & Shmuel Hauser, 2001.
"The Price of Options Illiquidity,"
Journal of Finance, American Finance Association, vol. 56(2), pages 789-805, April.
- Menachem Brenner & Rafi Eldor & Shmuel Hauser, 1999. "The Price of Options Illiquidity," New York University, Leonard N. Stern School Finance Department Working Paper Seires 99-086, New York University, Leonard N. Stern School of Business-.
- Becker, Ralf & Clements, Adam E., 2008.
"Are combination forecasts of S&P 500 volatility statistically superior?,"
International Journal of Forecasting, Elsevier, vol. 24(1), pages 122-133.
- Ralf Becker & Adam Clements, 2007. "Are combination forecasts of S&P 500 volatility statistically superior?," NCER Working Paper Series 17, National Centre for Econometric Research.
- Whaley, Robert E., 1982. "Valuation of American call options on dividend-paying stocks : Empirical tests," Journal of Financial Economics, Elsevier, vol. 10(1), pages 29-58, March.
- U. Çetin & R. Jarrow & P. Protter & M. Warachka, 2008.
"Pricing Options in an Extended Black Scholes Economy with Illiquidity: Theory and Empirical Evidence,"
World Scientific Book Chapters, in: Financial Derivatives Pricing Selected Works of Robert Jarrow, chapter 9, pages 185-221,
World Scientific Publishing Co. Pte. Ltd..
- U. Çetin & R. Jarrow & P. Protter & M. Warachka, 2006. "Pricing Options in an Extended Black Scholes Economy with Illiquidity: Theory and Empirical Evidence," The Review of Financial Studies, Society for Financial Studies, vol. 19(2), pages 493-529.
- Jackwerth, Jens Carsten & Rubinstein, Mark, 1996. "Recovering Probability Distributions from Option Prices," Journal of Finance, American Finance Association, vol. 51(5), pages 1611-1632, December.
- repec:bla:jfinan:v:59:y:2004:i:2:p:711-753 is not listed on IDEAS
- Latane, Henry A & Rendleman, Richard J, Jr, 1976. "Standard Deviations of Stock Price Ratios Implied in Option Prices," Journal of Finance, American Finance Association, vol. 31(2), pages 369-381, May.
- Chiras, Donald P. & Manaster, Steven, 1978. "The information content of option prices and a test of market efficiency," Journal of Financial Economics, Elsevier, vol. 6(2-3), pages 213-234.
- Peter Reinhard Hansen & Asger Lunde & James M. Nason, 2003.
"Choosing the Best Volatility Models: The Model Confidence Set Approach,"
Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 65(s1), pages 839-861, December.
- Peter Reinhard Hansen & Asger Lunde & James M. Nason, 2003. "Choosing the best volatility models: the model confidence set approach," FRB Atlanta Working Paper 2003-28, Federal Reserve Bank of Atlanta.
- Peter Hansen & Asger Lunde & James M. Nason, 2003. "Choosing the Best Volatility Models:The Model Confidence Set Approach," Working Papers 2003-05, Brown University, Department of Economics.
- Heynen, Ronald & Kemna, Angelien & Vorst, Ton, 1994. "Analysis of the Term Structure of Implied Volatilities," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 29(1), pages 31-56, March.
- Schmalensee, Richard & Trippi, Robert R, 1978. "Common Stock Volatility Expectations Implied by Option Premia," Journal of Finance, American Finance Association, vol. 33(1), pages 129-147, March.
- Xu, Xinzhong & Taylor, Stephen J., 1994. "The Term Structure of Volatility Implied by Foreign Exchange Options," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 29(1), pages 57-74, March.
- Newey, Whitney & West, Kenneth, 2014.
"A simple, positive semi-definite, heteroscedasticity and autocorrelation consistent covariance matrix,"
Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 33(1), pages 125-132.
- Newey, Whitney K & West, Kenneth D, 1987. "A Simple, Positive Semi-definite, Heteroskedasticity and Autocorrelation Consistent Covariance Matrix," Econometrica, Econometric Society, vol. 55(3), pages 703-708, May.
- Whitney K. Newey & Kenneth D. West, 1986. "A Simple, Positive Semi-Definite, Heteroskedasticity and AutocorrelationConsistent Covariance Matrix," NBER Technical Working Papers 0055, National Bureau of Economic Research, Inc.
- Lamoureux, Christopher G & Lastrapes, William D, 1993. "Forecasting Stock-Return Variance: Toward an Understanding of Stochastic Implied Volatilities," The Review of Financial Studies, Society for Financial Studies, vol. 6(2), pages 293-326.
- repec:bla:jfinan:v:53:y:1998:i:6:p:2059-2106 is not listed on IDEAS
- Blair, Bevan J. & Poon, Ser-Huang & Taylor, Stephen J., 2001. "Forecasting S&P 100 volatility: the incremental information content of implied volatilities and high-frequency index returns," Journal of Econometrics, Elsevier, vol. 105(1), pages 5-26, November.
- Day, Theodore E. & Lewis, Craig M., 1988. "The behavior of the volatility implicit in the prices of stock index options," Journal of Financial Economics, Elsevier, vol. 22(1), pages 103-122, October.
- Campa, Jose Manuel & Chang, P H Kevin, 1995. "Testing the Expectations Hypothesis on the Term Structure of Volatilities in Foreign Exchange Options," Journal of Finance, American Finance Association, vol. 50(2), pages 529-547, June.
- Pena, Ignacio & Rubio, Gonzalo & Serna, Gregorio, 1999. "Why do we smile? On the determinants of the implied volatility function," Journal of Banking & Finance, Elsevier, vol. 23(8), pages 1151-1179, August.
- Christensen, B. J. & Prabhala, N. R., 1998. "The relation between implied and realized volatility," Journal of Financial Economics, Elsevier, vol. 50(2), pages 125-150, November.
Citations
Blog mentions
As found by EconAcademics.org, the blog aggregator for Economics research:- New insights into the events on the Indian stock market in the mid-1990s
by Ajay Shah in Ajay Shah's blog on 2012-04-11 22:22:00 - Interesting readings
by Ajay Shah in Ajay Shah's blog on 2011-05-20 09:33:00 - The rupee: Frequently asked questions
by Ajay Shah in Ajay Shah's blog on 2011-12-02 00:26:00 - Interesting Readings for May 20, 2011
by Ajay Shah in Citizen Economists on 2011-05-20 22:20:24 - The rupee: Frequently asked questions
by Ajay Shah in Citizen Economists on 2011-12-02 20:50:18 - New insights into the events on the Indian stock market in the mid-1990s
by Ajay Shah in Citizen Economists on 2012-04-14 00:10:04
Citations
Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
Cited by:
- Sankar, Ganesh & Ramachandran, Shankar & Lukose P J, Jijo, 2020. "Dynamics of variance risk premium: Evidence from India," International Review of Economics & Finance, Elsevier, vol. 70(C), pages 321-334.
- Rohini Grover & Ajay Shah, 2014. "The imprecision of volatility indexes," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2014-031, Indira Gandhi Institute of Development Research, Mumbai, India.
- Chaiyuth Padungsaksawasdi & Robert T. Daigler, 2014. "The Return‐Implied Volatility Relation for Commodity ETFs," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 34(3), pages 261-281, March.
- Alok Dixit & Shivam Singh, 2018. "Ad-Hoc Black–Scholes vis-à-vis TSRV-based Black–Scholes: Evidence from Indian Options Market," Journal of Quantitative Economics, Springer;The Indian Econometric Society (TIES), vol. 16(1), pages 57-88, March.
- Sensoy, Ahmet & Omole, John, 2018. "Implied volatility indices: A review and extension in the Turkish case," International Review of Financial Analysis, Elsevier, vol. 60(C), pages 151-161.
Most related items
These are the items that most often cite the same works as this one and are cited by the same works as this one.- Christoffersen, Peter & Jacobs, Kris & Chang, Bo Young, 2013.
"Forecasting with Option-Implied Information,"
Handbook of Economic Forecasting, in: G. Elliott & C. Granger & A. Timmermann (ed.), Handbook of Economic Forecasting, edition 1, volume 2, chapter 0, pages 581-656,
Elsevier.
- Peter Christoffersen & Kris Jacobs & Bo Young Chang, 2011. "Forecasting with Option Implied Information," CREATES Research Papers 2011-46, Department of Economics and Business Economics, Aarhus University.
- Ghysels, E. & Harvey, A. & Renault, E., 1995.
"Stochastic Volatility,"
Papers
95.400, Toulouse - GREMAQ.
- Ghysels, E. & Harvey, A. & Renault, E., 1996. "Stochastic Volatility," Cahiers de recherche 9613, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
- GHYSELS, Eric & HARVEY, Andrew & RENAULT, Eric, 1995. "Stochastic Volatility," LIDAM Discussion Papers CORE 1995069, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Ghysels, E. & Harvey, A. & Renault, E., 1996. "Stochastic Volatility," Cahiers de recherche 9613, Universite de Montreal, Departement de sciences economiques.
- Eric Ghysels & Andrew Harvey & Eric Renault, 1995. "Stochastic Volatility," CIRANO Working Papers 95s-49, CIRANO.
- David S. Bates, 1995. "Testing Option Pricing Models," NBER Working Papers 5129, National Bureau of Economic Research, Inc.
- Peter Carr & Liuren Wu, 2004. "Variance Risk Premia," Finance 0409015, University Library of Munich, Germany.
- Cifarelli, giulio, 2002. "The information content of implied volatilities of options on eurodeposit futures traded on the LIFFE: is there long memory?," MPRA Paper 28538, University Library of Munich, Germany.
- Szakmary, Andrew & Ors, Evren & Kyoung Kim, Jin & Davidson, Wallace III, 2003. "The predictive power of implied volatility: Evidence from 35 futures markets," Journal of Banking & Finance, Elsevier, vol. 27(11), pages 2151-2175, November.
- Pilar Corredor Casado & Rafael Santamaría, "undated". "La estructura temporal de las volatilidades implícitas en la opción sobre el Ibex-35," Studies on the Spanish Economy 04, FEDEA.
- Tzang, Shyh-Weir & Hung, Chih-Hsing & Wang, Chou-Wen & Shyu, David So-De, 2011. "Do liquidity and sampling methods matter in constructing volatility indices? Empirical evidence from Taiwan," International Review of Economics & Finance, Elsevier, vol. 20(2), pages 312-324, April.
- Chuang, Wen-I & Huang, Teng-Ching & Lin, Bing-Huei, 2013. "Predicting volatility using the Markov-switching multifractal model: Evidence from S&P 100 index and equity options," The North American Journal of Economics and Finance, Elsevier, vol. 25(C), pages 168-187.
- DeMiguel, Victor & Plyakha, Yuliya & Uppal, Raman & Vilkov, Grigory, 2013.
"Improving Portfolio Selection Using Option-Implied Volatility and Skewness,"
Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 48(6), pages 1813-1845, December.
- Uppal, Raman & DeMiguel, Victor & Plyakha, Yuliya & Vilkov, Grigory, 2010. "Improving Portfolio Selection Using Option-Implied Volatility and Skewness," CEPR Discussion Papers 7686, C.E.P.R. Discussion Papers.
- Kai‐Jiun Chang & Mao‐Wei Hung & Yaw‐Huei Wang & Kuang‐Chieh Yen, 2019. "Volatility information implied in the term structure of VIX," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 39(1), pages 56-71, January.
- Tsiaras, Leonidas, 2009.
"The Forecast Performance of Competing Implied Volatility Measures: The Case of Individual Stocks,"
Finance Research Group Working Papers
F-2009-02, University of Aarhus, Aarhus School of Business, Department of Business Studies.
- Leonidas Tsiaras, 2010. "The Forecast Performance of Competing Implied Volatility Measures: The Case of Individual Stocks," CREATES Research Papers 2010-34, Department of Economics and Business Economics, Aarhus University.
- Imlak Shaikh & Puja Padhi, 2015. "On the Relationship of Ex-ante and Ex-post Volatility: A Sub-period Analysis of S&P CNX Nifty Index Options," Journal of Emerging Market Finance, Institute for Financial Management and Research, vol. 14(2), pages 140-175, August.
- Zhangxin (Frank) Liu & Michael J. O'Neill & Tom Smith, 2017. "State-preference pricing and volatility indices," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 57(3), pages 815-836, September.
- Christiansen, Charlotte & Strunk Hansen, Charlotte, 2000. "Implied Volatility of Interest Rate Options: An Empirical Investigation of the Market Model," Finance Working Papers 00-1, University of Aarhus, Aarhus School of Business, Department of Business Studies.
- Wilkens, Sascha & Roder, Klaus, 2006. "The informational content of option-implied distributions: Evidence from the Eurex index and interest rate futures options market," Global Finance Journal, Elsevier, vol. 17(1), pages 50-74, September.
- Koopman, Siem Jan & Jungbacker, Borus & Hol, Eugenie, 2005.
"Forecasting daily variability of the S&P 100 stock index using historical, realised and implied volatility measurements,"
Journal of Empirical Finance, Elsevier, vol. 12(3), pages 445-475, June.
- Siem Jan Koopman & Borus Jungbacker & Eugenie Hol, 2004. "Forecasting Daily Variability of the S&P 100 Stock Index using Historical, Realised and Implied Volatility Measurements," Tinbergen Institute Discussion Papers 04-016/4, Tinbergen Institute.
- Eugenie Hol & Siem Jan Koopman & Borus Jungbacker, 2004. "Forecasting daily variability of the S\&P 100 stock index using historical, realised and implied volatility measurements," Computing in Economics and Finance 2004 342, Society for Computational Economics.
- Lim, Terence & Lo, Andrew W. & Merton, Robert C. & Scholes, Myron S., 2006. "The Derivatives Sourcebook," Foundations and Trends(R) in Finance, now publishers, vol. 1(5–6), pages 365-572, April.
- Chen, Ren-Raw & Hsieh, Pei-lin & Huang, Jeffrey, 2018. "Crash risk and risk neutral densities," Journal of Empirical Finance, Elsevier, vol. 47(C), pages 162-189.
- Guan Wang & Pierre Yourougou & Yue Wang, 2012. "Which implied volatility provides the best measure of future volatility?," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 36(1), pages 93-105, January.
More about this item
Keywords
liquidity; implied volatility; volatility index; Indian index options market;All these keywords.
JEL classification:
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
- G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
- G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation
NEP fields
This paper has been announced in the following NEP Reports:- NEP-MST-2011-04-09 (Market Microstructure)
Statistics
Access and download statisticsCorrections
All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ind:igiwpp:2011-006. See general information about how to correct material in RePEc.
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Shamprasad M. Pujar (email available below). General contact details of provider: https://edirc.repec.org/data/igidrin.html .
Please note that corrections may take a couple of weeks to filter through the various RePEc services.