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The implied volatility of index options: the evidence of options on the Australian SPI 200 index futures

thesis
posted on 09.02.2017, 05:16 by Tanha, Hassan
This thesis is a study of the implied volatility component of the Black and Scholes option-pricing model. A recurring finding in the thesis is that in-the-money and out-of ¬the-money options should not be regarded as being on a continuum, but rather as being inherently "different." Additionally, differences across these options are accounted for in relation to behavioural and consumption based models, which, in turn, provide an explanation for the volatility smile. These findings provide a recurring and underlying theme in the thesis. Specifically, the thesis combines seven studies that aim to provide a comprehensive study of the implied volatility of call options on the Australian ASX/SPI 200 index futures contracts (2001-2006). In the first study (chapter 3), I explore the shape of the implied volatility "smile" in terms of market micro-structure variables, market momentum and time to maturity. In the second study (chapter 4), I progress to examine the evolutionary dynamics of implied volatility. The predictive power of implied volatility in relation to the volatility of the underlying S&P/ASX 200 market index is examined in my third study (chapter 5). In my fourth and fifth studies (chapters 6 and 7), I relate implied volatility to macro-economic announcements (in relation to the state price density of the underlying asset in study 4, and in relation to the shape of the volatility smile in study 5). Study 6 (chapter 8) examines volatility asymmetry in the underlying S&P/ASX 200 market and the response of implied volatility. Finally, I examine the potential for artificial intelligent neural networks to improve on our ability to forecast the volatility smile pattern.

History

Campus location

Australia

Principal supervisor

Michael Dempsey

Year of Award

2011

Department, School or Centre

Accounting and Finance

Course

Doctor of Philosophy

Degree Type

DOCTORATE

Faculty

Faculty of Business and Economics