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    On the implied volatility from a "purified" option price process

    Access Status
    Fulltext not available
    Authors
    Luong, C.
    Dokuchaev, Nikolai
    Date
    2014
    Type
    Conference Paper
    
    Metadata
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    Citation
    Luong, C. and Dokuchaev, N. 2014. On the implied volatility from a “purified" option price process. Vietnam Journal of Mathematical Applications 12 (2) : pp 71-82.
    Source Title
    Vietnam Journal of Mathematical Applications Vol. 12(2)
    Source Conference
    Vietnam International Applied Mathematics Conference (VIAMC)
    ISSN
    1859-4492
    School
    Department of Mathematics and Statistics
    Remarks

    Presented at The Vietnam International Applied Mathematics Conference (VIAMC), Dec 19 2013

    This work was supported by ARC grant of Australia DP120100928.

    URI
    http://hdl.handle.net/20.500.11937/29348
    Collection
    • Curtin Research Publications
    Abstract

    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.

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