Forward Information from Model-Free Implied Volatility Spread

• Main Authors: Chung-chuan Huang, 黃崇銓
• Other Authors: none
• Format: Others
• Language: zh-TW
• Published: 2008
• Online Access: http://ndltd.ncl.edu.tw/handle/49333748847265248346

碩士 === 國立中央大學 === 財務金融研究所 === 96 === In this article, we use the contract prices of S&P 500 index option to calculate the model-free implied volatility of call and put respectively, and define the Model-Free Implied Volatility Spread, MFIVS. We then explore MFIVS’s ability in the price discovery of the underlying, namely the relationships between MFIVS and future market returns as well as its future volatility. After grouping and sorting the volatility spread, we find taking advantage of the information from the extreme groups will have significant higher return than the average market return in the future. Besides, we also find that there is a negative relationship between volatility spread and the change of future volatility. Given the asymmetric impact of volatility spread to future volatility, the group of low volatility spread will face higher volatility risk than the higher ones, which implies that investing in the group of high volatility spread will end up with higher return while at lower risk. To sum up, we find that the forward information embeds in MFIVS is relevant in both the pricing discovery and volatility risk management.