On the implied volatility from a "purified" option price process
MetadataShow full item record
The option price, the implied volatility and the volatility index are often used as indicators of market sentiment about the future volatility. We proposed an alternative price process so-called the "purified" option price and its implied volatility for this purpose. Our aim is to reduce the impact of stock price movements on the implied volatility, provided that there are sufficient sets of price data and the underlying option contracts are European-style options. Since option prices are only available for finite sets of strike prices and expiration times, we suggested to use quadratic interpolation on the available contracts to approximate the missing prices. For this paper, we demonstrated the implied volatility of the proposed process on S\&P 500 Index Options.
Presented at The Vietnam International Applied Mathematics Conference (VIAMC), Dec 19 2013
This work was supported by ARC grant of Australia DP120100928.
Showing items related by title, author, creator and subject.
Luong, C.; Dokuchaev, Nikolai (2014)The paper studies methods of dynamic estimation of volatility for financial time series. We suggest to estimate the volatility as the implied volatility inferred from some artificial ‘dynamically purified' price process ...
Mostafa, Fahed. (2011)Market risk refers to the potential loss that can be incurred as a result of movements inmarket factors. Capturing and measuring these factors are crucial in understanding andevaluating the risk exposure associated with ...
Pojanavatee, Sasipa (2013)Mutual funds are emerging as an opportunity for investors to automatically diversify their investments in such a way that all their money is pooled and the investment decisions are left to a professional manager. There ...