Abstract
We examine the impact of option trading activity on implied volatility changes to returns in the index futures option market. Controlling for option moneyness, delta-to-option-premium ratio, and liquidity, we find that net buying pressure, profit-maximization behavior, and liquidity are interrelated and affect asymmetric responses of implied volatilities to returns. Implied volatilities of options with more liquidity, a higher exercise price, and a higher delta-to-option-premium ratio have the most profound asymmetric response.
Original language | English |
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Pages (from-to) | 381-407 |
Number of pages | 27 |
Journal | Financial Review |
Volume | 40 |
Issue number | 3 |
DOIs | |
Publication status | Published - 1 Jan 2005 |
Keywords
- Asymmetric response
- Futures options
- G13
- Implied volatility
ASJC Scopus subject areas
- Finance
- Economics and Econometrics