Application of the Model-Free Implied Volatility to Value at Risk: Evidence from the TAIEX Options

• Main Authors: Yu-Ming Lin, 林育民
• Other Authors: Wei-Peng.Chen
• Format: Others
• Language: zh-TW
• Published: 2009
• Online Access: http://ndltd.ncl.edu.tw/handle/09244050473933770104

碩士 === 世新大學 === 財務金融學研究所(含碩專班) === 97 === There is a lot of research on the forcasting ability and information content of volatility. People always try to find the best one. Britten-Jones and Neuberger（2000） derived the model-free implied volatility under the assumption that the price of underlying asset follows diffusion process. Unlike the traditional concept of implied volatility, their model-free implied volatility is not based on any specific option pricing model. Instead, it is derived entirely from no-arbitrage conditions. In particular, Britten-Jones and Neuberger (2000) showed that the risk-neutral integrated return variance between the current date and a future date is fully specified by the set of prices of options expiring on the future date. Jiang and Tian（2005） further extend the above model-free implied volatility to asset price process with jumps and develop a simple method for implementing the model-free implied volatility to transfer the formula to a computing instrument using European option prices on the market, and use the model with Standard and Poor’s 500 index options, the result suggest that the model-free implied volatility is a better volatility for forecasting future realized volatility and information content. According to Jiang and Tian（2005）, the empirical study in this paper use the data of TXO to compute the model-free implied volatility to use in VaR (Value at Risk) model. No matter before or after the cut of tax, we found that model-free implied volatility is a good input in VaR model.