Forecasting Intraday Profits Using FTSE 100 Index Options

• Main Authors: Hsuan-Yi Yu, 游瑄宜
• Other Authors: An-Sing Chen
• Format: Others
• Language: en_US
• Published: 2007
• Online Access: http://ndltd.ncl.edu.tw/handle/94683753772950526383

碩士 === 國立中正大學 === 財務金融所 === 95 === This paper is intended to explore a way to make money with different views. We expect that it has certain rules and can be followed. Besides, we anticipate that there are some arbitrage chances existing in it. The purpose of this paper is to forecast intraday profits and distant tests by using FTSE 100 Index Options. Using FTSE 100 index options prices over the period January 2, 2003 to December 31, 2004, we discuss several option pricing models which are the BS, the SV, and the SVJ models. We will make intraday trading and then we can make a 3D surface plot of (average) trading profits for day t, (average) return of FTSE 100 the previous day, and (average) % pricing errors. The X-axis should be the FTSE 100 return for the previous day, the Y-axis would be % pricing errors, and the Z-axis would be the trading profit for day t. We expect to find out the relationship between these variables. In our sample fit, the smaller RMSE value is better. The SVJ model has the best performance, the next is the SV model and the BS model is the worst. Whether classify our trading data with moneyness or not, we can find that if options overpriced by the candicate pricing model, we will adapt the “Sell” strategy. We can make profits when FTSE 100 Return (t-1) falls into the range between -0.02 to 0.02. If options underpriced, we will adapt the “Buy” strategy. We can make profits when falls into the range between -0.06 to -0.02 and the range between 0.02 to 0.06. It can be said that we can make money from intraday trading when FTSE 100 Return (t-1) far from zero.The empirical results are consistant to the previous study in 1970’s. Therefore, FTSE 100 Return (t-1) also can be an important indicator.