Asymmetric volatility and trading activity in index futures options

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

doi:10.1111/j.1540-6288.2005.00107.x

Asymmetric volatility and trading activity in index futures options

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

Research output: Journal article publication › Journal article › Academic research › peer-review

5 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 language	English
Pages (from-to)	381-407
Number of pages	27
Journal	Financial Review
Volume	40
Issue number	3
DOIs	https://doi.org/10.1111/j.1540-6288.2005.00107.x
Publication status	Published - 1 Jan 2005

Keywords

Asymmetric response
Futures options
G13
Implied volatility

ASJC Scopus subject areas

Finance
Economics and Econometrics

More information

10.1111/j.1540-6288.2005.00107.x

Cite this

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AB - 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.

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KW - G13

KW - Implied volatility

UR - https://www.scopus.com/pages/publications/77954105005

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DO - 10.1111/j.1540-6288.2005.00107.x

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JO - Financial Review

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IS - 3

ER -

Asymmetric volatility and trading activity in index futures options

Abstract

Keywords

ASJC Scopus subject areas

More information

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