Asymmetric volatility and trading activity in index futures options

Kam C. Chan, Tsz Wan Cheng, Peter P. Lung

Research output: Journal article publicationJournal articleAcademic researchpeer-review

4 Citations (Scopus)

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 languageEnglish
Pages (from-to)381-407
Number of pages27
JournalFinancial Review
Volume40
Issue number3
DOIs
Publication statusPublished - 1 Jan 2005

Keywords

  • Asymmetric response
  • Futures options
  • G13
  • Implied volatility

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

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