Dissertations / Theses: 'Implied volatilitie'

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PEDIO, MANUELA. "Essays on the Time Series and Cross-Sectional Predictive Power of Network-Based Volatility Spillover Measures." Doctoral thesis, Università degli Studi di Milano-Bicocca, 2021. http://hdl.handle.net/10281/305198.

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• Questa tesi include due saggi che sono dedicati allo studio delle serie temporali e del potere predittivo a livello di cross-section di un indice di spillover di volatilità di nuova concezione basato sulle volatilità implicite delle opzioni. Nel primo saggio, ci concentriamo sulla stima dell'indice e sulla valutazione se i (cambiamenti nell'indice) possono prevedere i rendimenti in eccesso delle serie temporali di (un insieme di) singoli titoli e dello S&P 500. Si confronta il potere predittivo in-sample e out-of-sample di questo indice con quello dell'indice di spillover di volatilità proposto da Diebold e Yilmaz (2008, 2012), che si basa invece su volatilità realizzate. Sebbene entrambe le misure mostrino la prova del potere predittivo all'interno del campione, solo la misura basata sulla volatilità implicita è in grado di produrre previsioni out-of-sample che battono un semplice benchmark costituito dalla media storica. Troviamo che questo potere predittivo possa essere sfruttato da un investitore utilizzando semplici strategie di trading basate sul segno dell'eccesso di rendimento previsto e da un investitore media-varianza. Mostriamo anche che, nonostante la sovra-performance predittiva dell'indice di spillover della volatilità implicita provenga principalmente da periodi di alta volatilità, il potere previsionale aggiuntivo non è sussunto dall'inclusione del VIX (come proxy della volatilità aggregata) nelle regressioni predittive. Nel secondo saggio, indaghiamo se il rischio di spillover della volatilità (oltre al rischio di volatilità aggregata) sia valutato nella cross-section dei rendimenti delle azioni statunitensi. Per il nostro scopo, conduciamo diversi test di asset pricing (parametrici e non parametrici). In primo luogo, ordiniamo l'universo azionario in cinque portafogli quintili in base alla loro esposizione all'indice di spillover di volatilità implicita che abbiamo sviluppato nel primo saggio. In secondo luogo, utilizziamo una procedura di ordinamento condizionale per controllare le variabili che possono avere un effetto di confusione sui nostri risultati. Troviamo che i titoli con una bassa esposizione agli spillover di volatilità guadagnano in media il 6,45% all'anno in più rispetto ai titoli con un'elevata esposizione agli spillover di volatilità. Questa differenza persiste anche dopo l'aggiustamento per il rischio e quando controlliamo l'esposizione a shock di volatilità aggregata. Infine, utilizziamo un approccio Fama-Mac Beth per stimare il premio per il rischio associato al rischio di ricaduta della volatilità; questa procedura conferma in parte i risultati dell'analisi non parametrica di portfolio, sebbene il premio sia inferiore e generalmente stimato in modo impreciso.
This thesis includes two essays that are devoted to study the time-series and cross-sectional predictive power of a newly developed, forward-looking volatility spillover index based on option implied volatilities. In the first essay, we focus on the estimation of the index and on the assessment of whether the (changes in) the index can predict the time-series excess returns of (a set of) individual stocks and of the S&P 500. We also compare the in-sample and out-of-sample predictive power of this index with that of the volatility spillover index proposed by Diebold and Yilmaz (2008, 2012), which is instead based on realized, backward-looking volatilities. While both measures show evidence of in-sample predictive power, only the option-implied measure is able to produce out-of-sample forecasts that outperform a simple historical mean benchmark. We find this predictive power to be exploitable by an investor using simple trading strategies based on the sign of the predicted excess return and also by a mean-variance optimizer. We also show that, despite the predictive outperformance of the implied volatility spillover index is mostly coming from high-volatility periods, the additional forecast power is not subsumed by the inclusion of the VIX (as a proxy of aggregate volatility) in the predictive regressions. In the second essay, we investigate whether volatility spillover risk (in addition to aggregate volatility risk) is priced in the cross-section of US stock returns. To our purpose, we conduct several (parametric and non-parametric) asset pricing tests. First, we sort the stock universe into five quintile portfolios based on their exposure to the implied volatility spillover index that we have developed in the first essay. Second, we use a conditional sorting procedure to control for variables that may have a confounding effect on our results. We find that stocks with a low exposure to volatility spillovers earn an average 6.45% per annum more than stocks with a high exposure to volatility spillovers. This difference persists also after adjusting for risk and when we control for the exposure to aggregate volatility shocks. Finally, we employ a Fama-Mac Beth approach to estimate the risk premium associated with volatility spillover risk; this procedure partly confirms the results from the non-parametric, portfolio sorting analysis, although the premium is lower and generally imprecisely estimated.

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Varga, Lukáš. "Effect of Implied Volatility on FX Carry Trade." Master's thesis, Vysoká škola ekonomická v Praze, 2011. http://www.nusl.cz/ntk/nusl-113592.

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This thesis aims to back-test the ability of implied volatility carry trade strategies to outperform the carry trade strategies in the FX markets. Recent research has shown that the profitability of the strategies is partly attributable to the market mispricings of the forward volatility agreements and a tendency of the forward implied volatility to overestimate the future spot implied volatility. This thesis uses a similar approach to construct portfolios containing 10 developed as well as 9 emerging market currencies. Our approach is based on the assumption that Uncovered Interest rate Parity (UIP), Forward Unbiasedness Hypothesis (FUH) and Forward Volatility Unbiasedness Hypothesis (FVUH) do not hold and therefore providing investors with several opportunities to construct trading strategies taking advantage of these market mispricings. In this thesis, we show that the foreign exchange carry trade strategy composed of the specific developed and emerging country's currencies can be outperformed by portfolio consisting of the implied volatility carry trade strategies in the FX market over the analysed period. The portfolios are adjusted to the riskiness which is accounted for by the VIX and VXY-G7 index for developed and VIX and VXY-EM index for emerging economies. The strong performance of the strategies outlined in this thesis can be of significant value to FX traders and portfolio managers.

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Hanzal, Martin. "Implikovaná volatilita a vyšší momenty rizikově neutrálního rozdělení jako předstihové indikátory realizované volatility." Master's thesis, Vysoká škola ekonomická v Praze, 2017. http://www.nusl.cz/ntk/nusl-358955.

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Implied volatility obtained from market option prices is widely regarded as an efficient predictor of future realised volatility. Implied volatility can be thought of as market's expectation of future realised volatility. We distinguish between volatility-changing events with respect to expectations - scheduled events (such as information releases) and unscheduled events. We propose a method of testing the information content of option-implied risk-neutral moments prior to volatility-changing events. Using the method introduced by Bakshi, Kapadia & Madan (2003) we extract implied volatility, skewness and kurtosis from S&P 500 options market prices and apply the proposed method in four case studies. Two are concerned with scheduled events - United Kingdom European Union membership referendum, 2016 and United States presidential election, 2016, two are concerned with unscheduled events - flash crash of August 24, 2015 and flash crash of October 15, 2014. Implied volatility indicates a rise in future realised volatility prior to both scheduled events. We find a significant rise in implied kurtosis during the last three days prior to the presidential election of 2016. Prior to unscheduled events, we find no evidence of implied moments indicating a rise in future realised volatility.

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Brodd, Tobias. "Modeling the Relation Between Implied and Realized Volatility." Thesis, KTH, Matematisk statistik, 2020. http://urn.kb.se/resolve?urn=urn:nbn:se:kth:diva-273609.

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Options are an important part in today's financial market. It's therefore of high importance to be able to understand when options are overvalued and undervalued to get a lead on the market. To determine this, the relation between the volatility of the underlying asset, called realized volatility, and the market's expected volatility, called implied volatility, can be analyzed. In this thesis five models were investigated for modeling the relation between implied and realized volatility. The five models consisted of one Ornstein–Uhlenbeck model, two autoregressive models and two artificial neural networks. To analyze the performance of the models, different accuracy measures were calculated for out-of-sample forecasts. Signals from the models were also calculated and used in a simulated options trading environment to get a better understanding of how well they perform in trading applications. The results suggest that artificial neural networks are able to model the relation more accurately compared to more traditional time series models. It was also shown that a trading strategy based on forecasting the relation was able to generate significant profits. Furthermore, it was shown that profits could be increased by combining a forecasting model with a signal classification model.
Optioner är en viktig del i dagens finansiella marknad. Det är därför viktigt att kunna förstå när optioner är över- och undervärderade för att vara i framkant av marknaden. För att bestämma detta kan relationen mellan den underliggande tillgångens volatilitet, kallad realiserad volatilitet, och marknadens förväntade volatilitet, kallad implicit volatilitet, analyseras. I den här avhandlingen undersöktes fem modeller för att modellera relationen mellan implicit och realiserad volatilitet. De fem modellerna var en Ornstein–Uhlenbeck modell, två autoregressiva modeller samt två artificiella neurala nätverk. För att analysera modellernas prestanda undersöktes olika nogrannhetsmått för prognoser från modellerna. Signaler från modellerna beräknades även och användes i en simulerad optionshandelsmiljö för att få en bättre förståelse för hur väl de presterar i en handelstillämpning. Resultaten tyder på att artificiella neurala nätverk kan modellera relationen bättre än mer traditionella tidsseriemodellerna. Det visades även att en handelsstrategi baserad på prognoser av relationen kunde generera en signifikant vinst. Det visades dessutom att vinster kunde ökas genom att kombinera en prognosmodell med en modell som klassificerar signaler.

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Magnusson, Erik. "Implied Volatility Surface Construction." Thesis, Umeå universitet, Institutionen för fysik, 2018. http://urn.kb.se/resolve?urn=urn:nbn:se:umu:diva-145894.

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Implied volatility surfaces are central tools used for pricing options. This thesis treats the topic of their construction. The main purpose is to uncover the most appropriate methodology for constructing implied volatility surfaces from discrete data and evaluate how well it performs. First some methods and techniques in use for such surface constructing are presented. Then the most attractive approach, chosen to contain 4 interesting models is studied. The models’ performances are tested on two price grids from the EURO STOXX 50 and Nikkei 225 indices. The found implied volatility surfaces give good and decent fits to the data, respectively. The surfaces are evaluated in terms of presence of static arbitrage and are found to have it, although mostly for strike price and time to maturity combinations which are somewhat abnormal and rarely traded. Arbitrage is found to be more prevalent in surfaces when the input data is of lower quality. The volatility surfaces’ shapes and absolute values are compared in between models but also within models for some of the best-fit producing parameter sets. The surfaces are found to differ in both cases for some strike and maturity combinations - sometimes with relative differences of more than 10%. This suggests that surfaces with good fits to the input data still can produce distinctly differing prices for some options. Calibrating the models with the chosen approach involves calculations with complex numbers in ways which potentially introduce problematic discontinuities due to branch crossings. This is investigated numerically as well as theoretically for the 4 models and found to be a significant problem in one of them. The three other models are found to avoid these problems under all valid parameter sets.

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Wang, Guan Jun. "Essays on option-implied volatility." Related electronic resource:, 2007. http://proquest.umi.com/pqdweb?did=1407687881&sid=1&Fmt=2&clientId=3739&RQT=309&VName=PQD.

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Marçal, Filipe Miguel Barbosa. "Earnings announcements and implied volatility." Master's thesis, Instituto Superior de Economia e Gestão, 2018. http://hdl.handle.net/10400.5/16739.

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Mestrado em Finanças
Eu analisei a reação da volatilidade implícita em opções do tipo europeu subjacentes a ações americanas num curto espaço de tempo antes e depois das divulgações de resultados trimestrais, de 2007 a 2016. Concluí que as empresas que apresentam resultados que não atingem as expetativas dos analistas têm uma menor redução de volatilidade implícita nas opções quando comparadas com empresas que apresentam resultados que atingem ou superam as expetativas dos analistas. Neste estudo encontrei também evidências de uma queda generalizada na volatilidade implícita nos três dias subsequentes às divulgações de resultados. No que corresponde às maturidades, quanto maior a maturidade, menor o impacto das divulgações de resultados no preço das opções. O Mercado de opções aparenta absorver rapidamente a informação mais recente, e contém informação útil sobre as expetativas dos investidores.
I have analyzed the reaction of the Implied Volatility on European style options regarding American equities in a short period before and after quarterly earnings announcements, from 2007 to 2016. I concluded that firms' earnings announcements that fail to meet analyst expectations produce a lower implied volatility drop on options, when compared to earnings announcements that meet/beat analyst expectations. In this study I also found evidence of a general decrease in implied volatility in a three-day window following the earnings announcements. In what regards the maturities of the options it seems the higher the maturity the less impact the earnings announcements have on the option pricing. The options market seems to absorb rapidly the new information, and contain useful information about investors' expectations.
info:eu-repo/semantics/publishedVersion

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Roome, Patrick. "Asymptotics of forward implied volatility." Thesis, Imperial College London, 2016. http://hdl.handle.net/10044/1/30764.

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We study asymptotics of forward-start option prices and the forward implied volatility smile using the theory of sharp large deviations (and refinements). In Chapter 1 we give some intuition and insight into forward volatility and provide motivation for the study of forward smile asymptotics. We numerically analyse no-arbitrage bounds for the forward smile given calibration to the marginal distributions using (martingale) optimal transport theory. Furthermore, we derive several representations of forward-start option prices, analyse various measure-change symmetries and explore asymptotics of the forward smile for small and large forward-start dates. In Chapter 2 we derive a general closed-form expansion formula (including large-maturity and 'diagonal' small-maturity asymptotics) for the forward smile in a large class of models including the Heston and Schobel-Zhu stochastic volatility models and time-changed exponential Levy models. In Chapter 3 we prove that the out-of-the-money small-maturity forward smile explodes in the Heston model and a separate model-independent analysis shows that the at-the-money small-maturity limit is well defined for any Ito diffusion. Chapter 4 provides a full characterisation of the large-maturity forward smile in the Heston model. Although the leading-order decay is provided by a fairly classical large deviations behaviour, the algebraic expansion providing the higher-order terms depends highly on the parameters, and different powers of the maturity come into play. Classical (Ito diffusions) stochastic volatility models are not able to capture the steepness of small-maturity (spot) implied volatility smiles. Models with jumps, exhibiting small-maturity exploding smiles, have historically been proposed as an alternative. A recent breakthrough was made by Gatheral, Jaisson and Rosenbaum, who proposed to replace the Brownian driver of the instantaneous volatility by a short-memory fractional Brownian motion, which is able to capture the short-maturity steepness while preserving path continuity. In Chapter 5 we suggest a different route, randomising the Black-Scholes variance by a CEV-generated distribution, which allows us to modulate the rate of explosion (through the CEV exponent) of the implied volatility for small maturities. The range of rates includes behaviours similar to exponential Levy models and fractional stochastic volatility models. As a by-product, we make a conjecture on the small-maturity forward smile asymptotics of stochastic volatility models, in exact agreement with the results in Chapter 3 for Heston.

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Ye, Hui. "A Comparison of Local Volatility and Implied Volatility." Thesis, Uppsala universitet, Analys och tillämpad matematik, 2011. http://urn.kb.se/resolve?urn=urn:nbn:se:uu:diva-154745.

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Cap, Thi Diu. "Implied volatility with HJM–type Stochastic Volatility model." Thesis, Mälardalens högskola, Akademin för utbildning, kultur och kommunikation, 2021. http://urn.kb.se/resolve?urn=urn:nbn:se:mdh:diva-54938.

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In this thesis, we propose a new and simple approach of extending the single-factor Heston stochastic volatility model to a more flexible one in solving option pricing problems. In this approach, the volatility process for the underlying asset dynamics depends on the time to maturity of the option. As this idea is inspired by the Heath-Jarrow-Morton framework which models the evolution of the full dynamics of forward rate curves for various maturities, we name this approach as the HJM-type stochastic volatility (HJM-SV) model. We conduct an empirical analysis by calibrating this model to real-market option data for underlying assets including an equity (ABB stock) and a market index (EURO STOXX 50), for two separated time spans from Jan 2017 to Dec 2017 (before the COVID-19 pandemic) and from Nov 2019 to Nov 2020 (after the start of COVID-19 pandemic). We investigate the optimal way of dividing the set of option maturities into three classes, namely, the short-maturity, middle-maturity, and long-maturity classes. We calibrate our HJM-SV model to the data in the following way, for each class a single-factor Heston stochastic volatility model is calibrated to the corresponding market data. We address the question that how well the new HJM-SV model captures the feature of implied volatility surface given by the market data.

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Jacquier, Antoine. "Implied volatility asymptotics under affine stochastic volatility models." Thesis, Imperial College London, 2010. http://hdl.handle.net/10044/1/6142.

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This thesis is concerned with the calibration of affine stochastic volatility models with jumps. This class of models encompasses most models used in practice and captures some of the common features of market data such as jumps and heavy tail distributions of returns. Two questions arise when one wants to calibrate such a model: (a) How to check its theoretical consistency with the relevant market characteristics? (b) How to calibrate it rigorously to market data, in particular to the so-called implied volatility, which is a normalised measure of option prices? These two questions form the backbone of this thesis, since they led to the following idea: instead of calibrating a model using a computer-intensive global optimisation algorithm, it should be more efficient to use a less robust—hence faster—algorithm, but with an accurate starting point. Henceforth deriving closed-form approximation formulae for the implied-volatility should provide a way to obtain such accurate initial points, thus ensuring a faster calibration. In this thesis we propose such a calibration approach based on the time-asymptotics of affine stochastic volatility models with jumps. Mathematically since this class of models is defined via its Laplace transform, the tools we naturally use are large deviations theory as well as complex saddle-point methods. Large deviations enable us to obtain the limiting behaviour (in small or large time) of the implied volatility, and saddle-point methods are needed to obtain more accurate results on the speed of convergence. We also provide numerical evidence in order to highlight the accuracy of the closed-form approximations thus obtained, and compare them to standard pricing methods based on real calibrated data.

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Fadone, Luca <1991&gt. "From model-based to model-free implied volatilities: the VIX index and the new volatility derivatives." Master's Degree Thesis, Università Ca' Foscari Venezia, 2017. http://hdl.handle.net/10579/10115.

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The aim of the work is to study volatility. It will consider the development of new models and methodologies for the measurement, forecasting and hedging the volatility risk. In particular, it will start from model-based approaches, then considering model-free approaches and volatility indexes. The focus of the work is on the CBOE VIX index, which provides an effective measure of the S&P500 implied volatility. As a further aim, we intend to study investment strategies involving derivatives based on the VIX index. These strategies are constructed both to hedge traditional portfolios and to speculate on the volatility.

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Weiß, Harald [Verfasser], and Gerhard [Akademischer Betreuer] Wagenhals. "Forecasting DAX Volatility: A Comparison of Time Series Models and Implied Volatilities / Harald Weiß ; Betreuer: Gerhard Wagenhals." Hohenheim : Kommunikations-, Informations- und Medienzentrum der Universität Hohenheim, 2017. http://d-nb.info/1124051759/34.

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Roper, Michael Paul Veran Mathematics &amp Statistics Faculty of Science UNSW. "Implied volatility: general properties and asymptotics." Awarded By:University of New South Wales. Mathematics & Statistics, 2009. http://handle.unsw.edu.au/1959.4/44519.

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This thesis investigates implied volatility in general classes of stock price models. To begin with, we take a very general view. We find that implied volatility is always, everywhere, and for every expiry well-defined only if the stock price is a non-negative martingale. We also derive sufficient and close to necessary conditions for an implied volatility surface to be free from static arbitrage. In this context, free from static arbitrage means that the call price surface generated by the implied volatility surface is free from static arbitrage. We also investigate the small time to expiry behaviour of implied volatility. We do this in almost complete generality, assuming only that the call price surface is non-decreasing and right continuous in time to expiry and that the call surface satisfies the no-arbitrage bounds (S-K)+≤ C(K, τ)≤ S. We used S to denote the current stock price, K to be a option strike price, τ denotes time to expiry, and C(K, τ) the price of the K strike option expiring in τ time units. Under these weak assumptions, we obtain exact asymptotic formulae relating the call price surface and the implied volatility surface close to expiry. We apply our general asymptotic formulae to determining the small time to expiry behaviour of implied volatility in a variety of models. We consider exponential L??vy models, obtaining new and somewhat surprising results. We then investigate the behaviour close to expiry of stochastic volatility models in the at-the-money case. Our results generalise what is already known and by a novel method of proof. In the not at-the-money case, we consider local volatility models using classical results of Varadhan. In obtaining the asymptotics for local volatility models, we use a representation of the European call as an integral over time to expiry. We devote an entire chapter to representations of the European call option; a key role is played by local time and the argument of Klebaner. A novel alternative that is especially useful in the local volatility case is also presented.

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Wickström, Simon. "Jump-Diffusion Models and Implied Volatility." Thesis, Uppsala universitet, Analys och sannolikhetsteori, 2015. http://urn.kb.se/resolve?urn=urn:nbn:se:uu:diva-242054.

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Crawford, Danielle Ana. "Estimating Long Term Equity Implied Volatility." Master's thesis, Faculty of Commerce, 2019. http://hdl.handle.net/11427/31366.

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Estimating and extrapolating long term equity implied volatilities is of importance in the investment and insurance industry, where ’long term’ refers to periods of ten to thirty years. Market-consistent calibration is difficult to perform in the South African market due to lack of long term liquid tradable derivatives. In this case, practitioners have to estimate the implied volatility surface across a range of expiries and moneyness levels. A detailed evaluation is performed for different estimation techniques to assess the strengths and weaknesses of each of the models. The estimation techniques considered include statistical and time-series techniques, non-parametric techniques and three potential methods which use the local volatility model.

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Zhang, Jun. "Organization & Analysis of Stock Option Market Data." Digital WPI, 2011. https://digitalcommons.wpi.edu/etd-theses/34.

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Option market data are quoted in terms of option prices and are fragmented into over 100 individual contract files per day for each symbol. Traders and quantitative analysts compare values of options in terms of implied volatilities. The current project refactors fragmented option price data into implied volatility files organized by stock symbols and expiration dates. Each resulting file comprises the temporal evolution of daily volatility smile curves for every day prior to expiration. Possible analysis enabled by the refactored data is demonstrated.

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Kozyreva, Maria. "How reliable is implied volatility A comparison between implied and actual volatility on an index at the Nordic Market." Thesis, Halmstad University, School of Information Science, Computer and Electrical Engineering (IDE), 2007. http://urn.kb.se/resolve?urn=urn:nbn:se:hh:diva-1635.

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Volatility forecast plays a central role in the financial decision making process. An intrinsic purpose of any investor is profit earning. For that purpose investors need to estimate the risk. One of the most efficient

methods to this end is the volatility estimation. In this theses I compare the CBOE Volatility Index, (VIX) with the actual volatility on an index at the Nordic Market. The actual volatility is defined as the one-day-ahead prediction as calculated by using the GARCH(1,1) model. By using the VIX model I performed consecutive predictions 30 days ahead between February the 2nd, 2007 to March

the 6th, 2007. These predictions were compared with the GARCH(1,1) one-day-ahead predictions for the same period. To my knowledge, such comparisons have not been performed earlier on the Nordic Market. The conclusion of the study was that the VIX predictions tends to higher values then the GARCH(1,1) predictions except for large prices upward jumps, which indicates that the VIX is not able to predict future shocks.

Except from these jumps, the VIX more often shows larger value than the GARCH(1,1). This is interpreted as an uncertainly of the prediction. However, the VIX predictions follows the actual volatility reasonable

well. I conclude that the VIX estimation can be used as a reliable estimator of market volatility.

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Guo, Zhi Jun Mathematics &amp Statistics Faculty of Science UNSW. "Small time asymptotics of implied volatility under local volatility models." Publisher:University of New South Wales. Mathematics & Statistics, 2009. http://handle.unsw.edu.au/1959.4/43746.

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Under a class of one dimensional local volatility models, this thesis establishes closed form small time asymptotic formulae for the gradient of the implied volatility, whether or not the options are at the money, and for the at the money Hessian of the implied volatility. Along the way it also partially verifies the statement by Berestycki, Busca and Florent (2004) that the implied volatility admits higher order Taylor series expansions in time near expiry. Both as a prelude to the presentation of these main results and as a highlight of the importance of the no arbitrage condition, this thesis shows in its beginning a Cox-Ingersoll-Ross type stock model where an equivalent martingale measure does not always exist.

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Ahy, Nathaniel, and Mikael Sierra. "Implied Volatility Surface Approximation under a Two-Factor Stochastic Volatility Model." Thesis, Mälardalens högskola, Akademin för utbildning, kultur och kommunikation, 2018. http://urn.kb.se/resolve?urn=urn:nbn:se:mdh:diva-40039.

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Due to recent research disproving old claims in ﬁnancial mathematics such as constant volatility in option prices, new approaches have been incurred to analyze the implied volatility, namely stochastic volatility models. The use of stochastic volatility in option pricing is a relatively new and unexplored ﬁeld of research with a lot of unknowns, where new answers are of great interest to anyone practicing valuation of derivative instruments such as options. With both single and two-factor stochastic volatility models containing various correlation structures with respect to the asset price and differing mean-reversions of variance the question arises as to how these values change their more observable counterpart: the implied volatility. Using the semi-analytical formula derived by Chiarella and Ziveyi, we compute European call option prices. Then, through the Black–Scholes formula, we solve for the implied volatility by applying the bisection method. The implied volatilities obtained are then approximated using various models of regression where the models’ coefﬁcients are determined through the Moore–Penrose pseudo-inverse to produce implied volatility surfaces for each selected pair of correlations and mean-reversion rates. Through these methods we discover that for different mean-reversions and correlations the overall implied volatility varies signiﬁcantly and the relationship between the strike price, time to maturity, implied volatility are transformed.

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Skoog, Daniel. "Jump processes and the implied volatility curve." Thesis, Uppsala University, Department of Mathematics, 2008. http://urn.kb.se/resolve?urn=urn:nbn:se:uu:diva-120040.

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Hafner, Reinhold. "Stochastic implied volatility : a factor-based model /." Berlin [u.a.] : Springer, 2004. http://www.loc.gov/catdir/enhancements/fy0813/2004109369-d.html.

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Häfner, Reinhold. "Stochastic implied volatility : a factor-based model /." Berlin ; New York : Springer, 2004. http://www.loc.gov/catdir/enhancements/fy0813/2004109369-d.html.

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Xiang, Yi. "Implied volatility smirk and non-parametric calibration /." View abstract or full-text, 2004. http://library.ust.hk/cgi/db/thesis.pl?MATH%202004%20XIANG.

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Thesis (M.Phil.)--Hong Kong University of Science and Technology, 2004.
Includes bibliographical references (leaves 107-114). Also available in electronic version. Access restricted to campus users.

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Martini, Paolo. "Forward implied volatility expansions in LSV models." Master's thesis, Alma Mater Studiorum - Università di Bologna, 2013. http://amslaurea.unibo.it/6343/.

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In this work we address the problem of finding formulas for efficient and reliable analytical approximation for the calculation of forward implied volatility in LSV models, a problem which is reduced to the calculation of option prices as an expansion of the price of the same financial asset in a Black-Scholes dynamic. Our approach involves an expansion of the differential operator, whose solution represents the price in local stochastic volatility dynamics. Further calculations then allow to obtain an expansion of the implied volatility without the aid of any special function or expensive from the computational point of view, in order to obtain explicit formulas fast to calculate but also as accurate as possible.

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Vikberg, Sara, and Julia Björkman. "How Well Does Implied Volatility Predict Future Stock Index Returns and Volatility? : A Study of Option-Implied Volatility Derived from OMXS30 Index Options." Thesis, Stockholms universitet, Företagsekonomiska institutionen, 2020. http://urn.kb.se/resolve?urn=urn:nbn:se:su:diva-187552.

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The purpose of this thesis is to study if and how well implied volatility can predict realised volatility and returns on the OMXS30 index one month in the future. The findings are put in relation to how historical volatility can predict realised volatility and how changes in implied volatility can predict returns. The study covers the time period from 10th of May 2012 to 9th of February 2020 and the implied volatility used in the study is derived from an unweighted average of OMXS30 call and put option implied volatility. Six different OLS-regressions are performed to study the prediction capability of implied volatility. This study finds support of implied volatility to be a statistically significant estimate for future realised returns in a univariate regression. However, our results show that historical volatility performs slightly better predictions of realised volatility than implied volatility. These are contradictory results to the majority of the papers studied in this thesis. These papers share the common notion that implied volatility is superior to historical volatility in predicting realised volatility. Further our results show that implied volatility nor change in implied volatility are significant estimates to future realised returns and perform poorly as predictors. This result is supported by the larger part of previous research, which found implied volatility to be a weak predictor of returns.

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Luensmann, Claire. "Implied volatility spillover in agricultural and energy markets." Thesis, Kansas State University, 2014. http://hdl.handle.net/2097/17276.

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Master of Science
Department of Agricultural Economics
Ted C. Schroeder
In recent years, the agricultural markets have been subject to increased prices and unusual levels of elevated volatility. One likely driver of this is the mandated ethanol expansion in the Energy Policy Act of 2005. Previous research has identified relationships in market prices and variability between the energy and grain markets, but little has been done to evaluate volatility spillover across a broader spectrum of agricultural commodities. Additionally, few studies have assessed causal linkages across market implied volatilities. This research examines implied volatility spillover in futures markets across major agricultural commodities and energies. The analysis also determines the time path and magnitude of volatility translation across the markets and compares the causal relationships between pre-ethanol boom and post-ethanol boom time periods. Granger causality tests are conducted using multivariate and bivariate vector autoregressive modeling techniques, and impulse response functions are employed to obtain time paths of the reactions. Overall, results indicate that strong implied volatility spillover relationships exist between the grain markets and between the live cattle and feeder cattle markets. The analysis also finds that the agricultural markets have evolved from lean hogs being the primary volatility leader in the pre-ethanol boom era to corn being the primary volatility leader in the post-ethanol boom era. Despite a high correlation between crude oil and corn volatilities in the post-ethanol boom time period, the causal linkage between the two commodities’ volatilities may not be as definite as other literature suggests.

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Sharma, Namit. "Forecasting Oil Price Volatility." Thesis, Virginia Tech, 1998. http://hdl.handle.net/10919/36815.

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This study compares different methods of forecasting price volatility in the crude oil futures market using daily data for the period November 1986 through March 1997. It compares the forward-looking implied volatility measure with two backward-looking time-series measures based on past returns - a simple historical volatility estimator and a set of estimators based on the Generalized Autoregressive Conditional Heteroscedasticity (GARCH) class of models.

Tests for the relative information content of implied volatilities vis-Ã -vis GARCH time series models are conducted within-sample by estimating nested conditional variance equations with returns information and implied volatilities as explanatory variables. Likelihood ratio tests indicate that both implied volatilities and past returns contribute volatility information. The study also checks for and confirms that the conditional Generalized Error Distribution (GED) better describes fat-tailed returns in the crude oil market as compared to the conditional normal distribution.

Out-of-sample forecasts of volatility using the GARCH GED model, implied volatility, and historical volatility are compared with realized volatility over two-week and four-week horizons to determine forecast accuracy. Forecasts are also evaluated for predictive power by regressing realized volatility on the forecasts. GARCH forecasts, though superior to historical volatility, do not perform as well as implied volatility over the two-week horizon. In the four-week case, historical volatility outperforms both of the other measures. Tests of relative information content show that for both forecast horizons, a combination of implied volatility and historical volatility leaves little information to be added by the GARCH model.
Master of Arts

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Nilsson, Oscar, and Okumu Emmanuel Latim. "Does Implied Volatility Predict Realized Volatility? : An Examination of Market Expectations." Thesis, Uppsala universitet, Nationalekonomiska institutionen, 2014. http://urn.kb.se/resolve?urn=urn:nbn:se:uu:diva-218792.

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The informational content of implied volatility and its prediction power is evaluated for time horizons of one month. The study covers the period of November 2007 to November 2013 for the two indices S&P500 and OMXS30. The findings are put in relation to the corresponding results for past realized volatility. We find results supporting that implied volatility is an efficient, although biased estimator of realized volatility. Our results support the common notion that implied volatility predicts realized volatility better than past realized volatility, and that it also subsumes most of the informational content of past realized volatility.

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Musayev, Taleh. "Anomalies in the foreign exchange returns and implied volatilities." Thesis, University of Strathclyde, 2009. http://oleg.lib.strath.ac.uk:80/R/?func=dbin-jump-full&object_id=22008.

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This thesis examines patterns in the FX returns and implied volatilities using daily return and implied volatility data for four major exchange rates for a period of January 1994 to December 2003. The existence of the patterns could indicate that the FX market is not efficient and could provide a basis for the construction of the trading strategies. Volatility tends to rise prior to the announcement of both scheduled and unscheduled news and fall on the announcement day. The "sign effect", indicated by the bad news having stronger impact on the volatility than good news, tends to weaken in post euro period. We find a strong evidence of the day of the week effect in the FX returns and implied volatilities, indicated by (i) positive Thursday and negative Friday returns, (ii) positive implied volatility changes on Monday and Tuesday and (iii) negative implied volatility changes on Thursday and Friday. The intraweek patterns have become more significant after the introduction of euro. We confirm the holiday and January effect that tends to strengthen in the "bad" years characterized by low GDP growth rate, and tends to weaken in the "good" years characterized by high GDP growth rate. We find a strong relation between implied volatility and contemporaneous returns, which is strongly affected by the news announcements, stronger for small returns and whose significance declines following the introduction of euro. There is also some evidence of the extreme levels of the implied volatility predicting following day returns, which is found to be particularly significant for negative (as opposed to positive) returns and for extremely large increases (as opposed to decreases)in the level of the implied volatility. The evidence presented in this thesis contributes to the existing research on FX anomalies, with the main contribution centring around a significant impact of euro.

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Gustafsson, Lars, and Marcus Lindberg. "Covered Warrants : How the Implied Volatility Changes Over Time." Thesis, Jönköping University, JIBS, Business Administration, 2005. http://urn.kb.se/resolve?urn=urn:nbn:se:hj:diva-260.

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Problem: Investors are dependent on the issuers’ valuation of covered warrants because the issuers also act as market makers. Hence it is crucial that the issuers value each of the five variables used in the Black & Scholes pricing formula in the same way at both the buying and selling occasion. For a covered warrant investor the most important is-sue is the volatility and how it changes over time. This thesis will therefore search for differences in changes of implied volatility between the different issuers.

Purpose: The purpose of this thesis is to analyze differences and similarities between the issuers’ changes of their covered warrants implied volatility.

Method: The authors have calculated the implied volatility for a sample of warrants with H&M and Ericsson as underlying assets. Black & Scholes formula has been used and this part of the thesis is made with a quantitative approach. After the implied volatility had been calculated correlation tests to the mean as well as to the stock were made. When analyzing the results the authors, in addition to the calculation, used a qualitative method by interviewing market makers. This was made in order to find better explanations to the results.

Conclusions: The differences in changes of implied volatility found between different warrants were small. In general, one warrant changed in the same way as the other ones from one day to another. These results reject the rumors that single issuers adjust their implied volatility in order to make more money. When single events in form of reports were analyzed, the authors found that the issuers changed their volatility in the same way to adjust for the changed uncertainty about the stocks future price. Further, these events clarifies that the basic dynamics of implied volatility is followed by the market. The analysis of how the implied volatility changes with respect to the stock price movements indicates a negative correlation. This implies that an increase in the stock price will lower the implied volatility and vice verse.

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Wang, Yan. "A Well-Posed Algorithm to Recover Implied Volatility." Thesis, Uppsala universitet, Institutionen för informationsteknologi, 2012. http://urn.kb.se/resolve?urn=urn:nbn:se:uu:diva-169441.

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Implied volatility plays a very important role in financial sector. In the assets of trading market,everyone wants to know the implied volatility in the future. However,it is difficult to predict it. In this paper,we use a new well-posed algorithm to recover implied volatility under the Black-Scholes theoretical framework. I reproduce this algorithm at first,then prove its stability and give some examples to test. The results show that this algorithm can work and the error is small. We can use it inpractice.

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Babbar, Katia Amrit. "Aspects of stochastic implied volatility in financial markets." Thesis, Imperial College London, 2001. http://ethos.bl.uk/OrderDetails.do?uin=uk.bl.ethos.274925.

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Aurell, Alexander. "The SVI implied volatility model and its calibration." Thesis, KTH, Matematisk statistik, 2014. http://urn.kb.se/resolve?urn=urn:nbn:se:kth:diva-150575.

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The SVI implied volatility model is a parametric model for stochastic implied volatility.The SVI is interesting because of the possibility to state explicit conditions on its parameters so that the model does not generate prices where static arbitrage opportunities can occur. Calibration of the SVI model to real market data requires non-linear optimization algorithms and can be quite time consuming. In recent years, methods to calibrate the SVI model that use its inherent structure to reduce the dimensions of the optimization problem have been invented in order to speed up the calibration. The ?first aim of this thesis is to justify the use of the model and the no static arbitrage conditions from a theoretic point of view. Important theorems by Kellerer and Lee and their proofs are discussed in detail and the conditions are carefully derived. The second aim is to implement the model so that it can be calibrated to real market implied volatility data. A calibration method is presented and the outcome of two numerical experiments validate it. The performance of the calibration method introduced in this thesis is measured in how big a fraction of the total market volume the method manages to ?t within the market spread. Tests show that the model manages to ?t most of the market volume inside the spread, even for options with short time to maturity. Further tests show that the model is capable to recalibrate an SVI parameter set that allows for static arbitrage opportunities into an SVI parameter set that does not.
SVI-modellen är en parametrisk modell för stokastisk implicit volatilitet. Modellen är intressant då det har visat sig möjligt att ställa upp villkor på dess parametrar så att priser den genererar för köp- och säljoptioner är fria från statiskt arbitrage. För att kalibrera SVI-modellen till marknadsdata krävs olinjär optimering, vilket i en implementering kan vara tidskrävande. På senare tid har kalibreringsmetoder som använder den inneboende strukturen i SVI-modellens parametrisering för att reducera dimensionen på optimeringen tagits fram. Den här uppsatsen har två syften. Det första är att berättiga SVI-modellen och villkoren för eliminering av statiskt arbitrage. Detta görs med en genomgång av den underliggande teorin. Viktiga satser av Kellerer och Lee presenteras, bevisas och diskuteras. Det andra syftet är att konstruera en kalibreringsmetod som möjliggör anpassning av SVI-modellen till marknadsdata och implementera denna. Utfallet av två numeriska experiment validerar kalibreringsmetoden. Kalibreringsmetodens prestanda mäts i hur stor del av marknadsvolymen som SVI-modellen lyckas anpassa inom spridningen av priser på marknaden. Tester visar på att kalibreringsmetoden lyckas anpassa den största delen av priserna innanför spridningen. Vidare tester visar att kalibreringsmetoden klarar av att omkalibrera SVI-modellen så att en parametermängd som till en början ger statisk arbitrage omvärderas till en parametermängd som är fri från statiskt arbitrage.

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Andersson, Hanna, and Ying Wang. "Implied volatility expansion under the generalized Heston model." Thesis, Mälardalens högskola, Akademin för utbildning, kultur och kommunikation, 2020. http://urn.kb.se/resolve?urn=urn:nbn:se:mdh:diva-48363.

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In this thesis, we derive a closed-form approximation to the implied volatility for a European option, assuming that the underlying asset follows the generalized Heston model. A new para- meter is added to the Heston model which constructed the generalized Heston model. Based on the results in Lorig, Pagliarani and Pascucci [11], we obtain implied volatility expansions up to third-order. We conduct numerical studies to check the accuracy of our expansions. More specifically we compare the implied volatilities computed using our expansions to the results by Monte Carlo simulation method. Our numerical results show that the third-order implied volatility expansion provides a very good approximation to the true value.

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Le, Thi Ngoc Quynh. "Analysing intraday implied volatility for pricing currency options." Thesis, Le, Thi Ngoc Quynh (2020) Analysing intraday implied volatility for pricing currency options. PhD thesis, Murdoch University, 2020. https://researchrepository.murdoch.edu.au/id/eprint/56979/.

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This research analyses the intraday implied volatility (IV) for pricing currency options. It conducts analyses in three steps. First, estimates at-the-money IV using the price of options with one-month, two-month, and three-month maturity during the opening, midday, and closing period of a trading day. Second, the Mincer-Zarnowitz regression test assessing the performance of IV to forecast the volatility of the underlying currency of options for the within-week, one-week, and one-month forecast horizon. Third, mean absolute error (MAE), mean squared error (MSE), and root mean squared error (RMSE) measures evaluating the performance of IV to estimate the price of currency options for the within-week, one-week, and one-month estimate horizon. It employs Australian dollar, British pound, Canadian dollar, Euro, and Swiss franc options trading from 01 January 2010 to 31 December 2017. This study reveals four critical findings. First, three-month maturity IV does not contain useful information about future volatility of the underlying currency and pricing currency options. Second, IV incorporates all information is not relevant to compute the price of currency options for less than a week estimate horizon. Third, IV of the closing period on Monday or Tuesday subsumes most of the essential information compared to other periods of a trading day and other days of a week to forecast volatility of the underlying currency and estimate the value of currency options. Fourth, the shorter (longer) maturity IV holds vital information to price currency options for the shorter (longer) estimate horizon. The overall research findings imply that the information content embedded in one-month and two-month maturity IV is appropriate to calculate the currency options price for the one-week and one-month estimate horizon, respectively. The intraday IV approach adds a new dimension to obtain the unobservable volatility in pricing currency options accurately for the researchers and practitioners.

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Öhman, Adam. "The Calibrated SSVI Method - Implied Volatility Surface Construction." Thesis, KTH, Matematisk statistik, 2019. http://urn.kb.se/resolve?urn=urn:nbn:se:kth:diva-257501.

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In this thesis will the question of how to construct implied volatility surfaces in a robust and arbitrage free way be investigated. To be able to know if the solutions are arbitrage free was an initial investigation about arbitrage in volatility surfaces made. From this investigation where two comprehensive theorems found. These theorems came from Roper in \cite{Roper2010}. Based on these where then two applicable arbitrage tests created. These tests came to be very important tools in the remaining thesis.The most reasonable classes of models for modeling the implied volatility surface where then investigated. It was concluded that the classes that seemed to have the best potential where the stochastic volatility models and the parametric representation models. The choice between these two classes where concluded to be based on a trade-off between simplicity and quality of the result. If it where possible to make the parametric representation models improve its result the best applicable choice would be that class. For the remaining thesis was it therefore decided to investigate this class. The parametric representation model that was chosen to be investigated where the SVI parametrization family since it seemed to have the most potential outside of its already strong foundation.The SVI parametrization family is diveded into 3 parametrizations, the raw SVI parametrization, the SSVI parametrization and the eSSVI parametrization. It was concluded that the raw SVI parametrization even though it gives very good market fits, was not robust enough to be chosen. This ment that the raw SVI parametrization would in most cases generate arbitrage in its surfaces. The SSVI model was concluded to be a very strong model compared to the raw SVI, since it was able to generate completely arbitrage free solutions with good enough results. The eSSVI is an extended parametrization of the SSVI with purpose to improve its short maturity results. It was concluded to give small improvements but with the trade of making the optimization procedure harder. It was therefore concluded that the SSVI parametrization might be the better application.To try to improve the results of the SSVI parametrization was a complementary procedure developed which got named the calibrated SSVI method. This method compared to the eSSVI parametrization would not change the parametrization but instead focusing on calibrating the initial fit that the SSVI generated. This method would heavily improve the initial fit of the SSVI surface but was less robust since it generated harder cases for the interpolation and extrapolation.
I det här examensarbetet undersöks frågan om hur man bör modellera implied volatilitetsytor på ett robust och arbitragefritt sätt. För att kunna veta om lösningarna är arbigtragefria börjades arbetet med en undersökning inom arbitrageområdet. De mest heltäckande resultatet som hittades var två theorem av Roper i \cite{Roper2010}. Baserat på dessa theorem kunde två applicerbara arbitragetester skapas som sedan kom att bli en av hörnstenarna i detta arbete. Genom att undersöka de modellklasser som verkade vara de bästa inom området valdes den parametriseringsbeskrivande modellklassen. I denna klass valdes sedan SVI parametriseringsfamiljen för vidare undersökning eftersom det verkade vara den familj av modeller som hade störst potential att uppnå jämnvikt mellan enkel applikation samt bra resultat. För den klassiska SVI modellen i SVI familjen drogs slutsatsen att modellen inte var tillräcklig för att kunna rekommenderas. Detta berodde på att SVI modellen i princip alltid genererade lösningar med arbitrage i. SVI modellen genererar dock väldigt bra lösningar mot marknadsdatan enskilt och kan därför vara ett bra alternativ om man bara ska modellera ett implied volatilitetssmil. SSVI modellen ansågs däremot vara ett väldigt bra alternativ. SSVI modellen genererar komplett aribragefria lösningar men har samtidigt rimligt bra marknadspassning. För att försöka förbättra resultaten från SSVI modellen, var en kompleterande metod kallad den kalibrerade SSVI metoden skapad. Denna metod kom att förbättra marknadspassningen som SSVI modellen genererade men som resultat kom robustheten att sjunka, då interpoleringen och extrapoleringen blev svårare att genomföra arbitragefritt.

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ALFINITO, GIULIO. "Interpreting the volatility surface: tools for pricing and risk management." Doctoral thesis, Università degli Studi di Roma "Tor Vergata", 2008. http://hdl.handle.net/2108/652.

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Questo lavoro tratta il problema della stima e dell'interpretazione di volatilità e correlazione per la gestione del rishio di portafogli azionari. In un mercato efficiente, in cui tutte le informazioni rilevanti sono condivise dai partecipanti, i prezzi degli strumenti derivati sono in relazione biunivoca con le stime di consenso delle densità di probabilità dei sottostanti. La valutazione degli strumenti derivati è l'arte di rappresentare i rischi finanziari mediante prezzi. Al centro di questo lavoro è il “ritorno” dai prezzi alle probabilità. Nel primo capitolo viene presentata una metodologia originale per la stima parametrica delle superfici di volatilità partendo dai prezzi di mercato. La forma funzionale proposta presenta il giusto mix di flessibilità e robustezza e permette di stimare con grande affidabilità anche superfici per cui i dati di mercato mercato risultano frammentati o di cattiva qualità. Il secondo capitolo si occupa delle superfici di probabilità. Viene introdotta la di superficie di probabilità come nuovo strumento per la valutazione e la gestione dei rischi di portafogli azionari. Viene inoltre descritto un metodo originale per stimare le densità implicite mediante distribuzioni Weibull. Due applicazioni vengono proposte a titolo di esempio: la valutazione di opzioni digitali e la costruzione di misure coerenti di rischio. L'ultimo capitolo tratta la correlazione e la stima di superfici di volatilità per basket di titoli. Viene proposta una metodologia originale che implementa tecniche di simulazione Montecarlo per la stima della superficie di volatilità del basket. Il problema della stima della correlazione implicita per scadenza e livello di moneyness viene analizzato in dettaglio, il lavoro si conclude con la descrizione e l'implementazione di una metodologia per la stima delle correlazioni implicite e la descrizione della loro struttura.
This dissertation is about the estimation and interpretation of volatility and correlation for the risk management of equity portfolios. In an efficient market, in which all the relevant information is shared by its participants, the prices of derivatives are in mutual relation with the consensus estimates of the probability densities of the underlying assets. The pricing of derivatives is the art of representing financial risks using prices. The aim of this work is to “go back” from prices to probabilities. The first chapter describes an original methodology for the parametric estimation of the volatility surfaces from market prices. The proposed functional specification displays the right mix of robustness and flexibility and allows to fit very accurately even surfaces for which there are few or low quality market data. The second chapter is about probability surfaces. The probability surface is put forward as a new tool for the evaluation and the management of risks related to equity portfolios. A new methodology, using Weibull distributions to fit implicit densities, is presented here. As an example, two applications are described: the pricing of digital options and the construction of coherent risk measures. The last chapter is about correlation and the estimation of volatility surfaces for baskets of stocks. A new methodology implementing Montecarlo simulation to construct the volatility surface for the basket is proposed. Implicit correlations are treated at this stage: the issue of correlation skew and term structure is analyzed in detail. The paper ends with the description and implementation of a methodology for the estimation of implicit correlations and the description of their structure.

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Belchior, Diogo Francisco Ferreira. "Implied volatility as a forecast for future volatility : evidence from european market." Master's thesis, Instituto Superior de Economia e Gestão, 2012. http://hdl.handle.net/10400.5/10866.

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Mestrado em Finanças
O objetivo principal deste estudo é o de testar se a Volatilidade Implicita em instrumentos financeiros, nomeadamente Opções financeiras, é um estimador preciso da Volatilidade Futura. Os dados usados dizem respeito ao Índice Euro Stoxx 50, mais concretamente cotações de fecho e Volatilidade Implicita em opções ATM com um mês até à maturidade, o que permite conduzir uma análise ao mercado Europeu. A amostra selecionada cobre o periodo de Janeiro de 2002 a Abril de 2012. Os testes realizados permitiram-nos concluir que a Volatilidade Implicita pode ser considerada um estimador centrado e eficiente para a Volatilidade Futura e ainda, que contém mais capacidade explicativa quando comparada com a Volatilidade Histórica, o que pode ser uma indicação de Eficiência de Mercado.
The main purpose of this master thesis is test whether implied volatility is an accurate estimator for future volatility. We collect data regarding to the Euro Stoxx 50 index, namely closing index prices and implied volatility from one-month ATM options, in order to conduct an analysis of the European Market. The Sample selected covers the period from January 2002 to April 2012. The tests conducted allow us to conclude that implied volatility can be considered an unbiased and efficient estimator for future volatility and also that has more predictive ability than historical volatility, which is an indication of market efficiency.

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Coleman-Fenn, Christopher Andrew. "Forecasting volatility and correlation : the role of option implied measures." Thesis, Queensland University of Technology, 2012. https://eprints.qut.edu.au/53138/1/Christopher_Coleman-Fenn_Thesis.pdf.

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Forecasts of volatility and correlation are important inputs into many practical financial problems. Broadly speaking, there are two ways of generating forecasts of these variables. Firstly, time-series models apply a statistical weighting scheme to historical measurements of the variable of interest. The alternative methodology extracts forecasts from the market traded value of option contracts. An efficient options market should be able to produce superior forecasts as it utilises a larger information set of not only historical information but also the market equilibrium expectation of options market participants. While much research has been conducted into the relative merits of these approaches, this thesis extends the literature along several lines through three empirical studies. Firstly, it is demonstrated that there exist statistically significant benefits to taking the volatility risk premium into account for the implied volatility for the purposes of univariate volatility forecasting. Secondly, high-frequency option implied measures are shown to lead to superior forecasts of the intraday stochastic component of intraday volatility and that these then lead on to superior forecasts of intraday total volatility. Finally, the use of realised and option implied measures of equicorrelation are shown to dominate measures based on daily returns.

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Joseph, Charles. "Multiscale modeling and analysis of option markets." Case Western Reserve University School of Graduate Studies / OhioLINK, 2014. http://rave.ohiolink.edu/etdc/view?acc_num=case1396626935.

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Burnos, Sergey, and ChaSing Ngow. "SVI estimation of the implied volatility by Kalman filter." Thesis, Högskolan i Halmstad, Sektionen för Informationsvetenskap, Data– och Elektroteknik (IDE), 2010. http://urn.kb.se/resolve?urn=urn:nbn:se:hh:diva-13949.

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To understand and model the dynamics of the implied volatility smile is essential for trading, pricing and risk management portfolio. We suggest a linear Kalman filter for updating of the Stochastic Volatility Inspired (SVI) model of the volatility. From a risk management perspective we generate the 1-day ahead forecast of profit and loss (P\&L) of option portfolios. We compare the estimation of the implied volatility using the SVI model with the cubic polynomial model. We find that the SVI Kalman filter has outperformed the others.

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Turkay, Saygun. "Market model of stochastic implied volatility and correlation stress." Thesis, Imperial College London, 2003. http://ethos.bl.uk/OrderDetails.do?uin=uk.bl.ethos.405832.

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Skiadopoulos, George. "Modelling the dynamics of implied volatility smiles and surfaces." Thesis, University of Warwick, 1999. http://wrap.warwick.ac.uk/65194/.

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"Smile-consistent" no-arbitrage stochastic volatility models take today's option prices as given, and they let them to evolve stochastically in such a way as to preclude arbitrage. This allows standard options to be priced correctly, and enables exotic options to be valued and hedged relative to them. We study how to model the dynamics of implied volatilities, since this is a necessary prerequisite for the implementation of these models. First, we investigate the number and shape of shocks that move implied volatility smiles, by applying Principal Components Analysis. The technique is applied to two different metrics: the strike, and the moneyness. Three distinct criteria are used to determine the number of components to retain. Subsequently, we construct a "Procrustes" type rotation in order to interpret them. Second, we use the same methodology to identify the number and shape of shocks that move implied volatility surfaces. In both cases, we find that the number of shocks is the same (two), in both metrics. Their interpretation is a shift for the first one, and a Z-shaped for the second. The results have implications for both option pricing and hedging, and for the economics of option pricing. Finally, we propose a new and general method for constructing a "smile-consistent" no-arbitrage stochastic volatility model: the simulation of the implied risk-neutral distribution. An algorithm for the simulation is developed when the first two moments change over time. It can be implemented easily, and it is based on the idea of mixture of distributions. It can also be generalized to cases where more complicated forms for the mixture are assumed.

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FONSECA, DIEGO AGUIAR. "PREDICABILITY DINAMICS IN BRAZILIAN CALL OPTIONS IMPLIED VOLATILITY SURFACES." PONTIFÍCIA UNIVERSIDADE CATÓLICA DO RIO DE JANEIRO, 2013. http://www.maxwell.vrac.puc-rio.br/Busca_etds.php?strSecao=resultado&nrSeq=34665@1.

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O presente trabalho busca explorar a previsibilidade na dinâmica temporal em modelos lineares de superfícies de volatilidade implícita estimados para opções de compra de ações brasileiras. Resultados de estudos anteriores, sob a abordagem usualmente empregada de estimação de modelos lineares em função do preço de exercício e do tempo até o vencimento a partir de dados de corte transversal sobre cada contrato disponível em dado instante, como Dumas, Fleming e Whaley (1998), revelam grande instabilidade nos coeficientes estimados ao longo do tempo. Por conseguinte, a incapacidade desta perspectiva em descrever a dinâmica intertemporal da estrutura, contrariando a observação empírica de volatilidade variável no tempo. A partir destas evidências e das conclusões de Heston e Nandi (2000), que reportaram significativa dependência da trajetória para a volatilidade dos retornos do índice S&P 500, Gonçalves e Guidolim (2006), propuseram um modelo em dois estágios, que aplica vetores autoregressivos para capturar a presença de variação temporal dos coeficientes de um modelo linear. A contribuição deste trabalho está em aplicar o Modelo proposto à realidade do mercado brasileiro de opções de ações, incipiente em liquidez e horizonte de negociação se comparado ao mercado norte americano, adaptando critérios a fim de validar sua aplicabilidade neste contexto em termos estatísticos e econômicos. Os resultados comprovam a superioridade desta abordagem em relação a outras comparáveis na literatura, mas não a capacidade de gerar retornos acima da média na presença de custos de transação contra a referência natural da taxa livre de risco. O que sugere a adequação à hipótese de eficiência de mercado.
O The present study aims to explore predictability in temporal dynamics regarding linear models of the implied volatility surfaces estimated for Brazilian stocks options. Previous results, by usual approach of fitting linear models linking implied volatility to time to maturity and moneyness, available for each cross-section of option contracts at a point in time, as in Dumas, Fleming and Whaley (1998), suggest that estimated parameters of such models are highly unstable over time. Therefore, this approach isn t capable of replicating various IVS s shapes, contrary to the empirical evidence of implied volatility varying with options strike price and date of expiration. Based on these evidences and in Heston and Nandi (2000), that exploit the information on path-dependency in volatility contained in the spot S&P 500 index, Gonçalves e Guidolim (2006) proposed a two-stage approach to modeling and forecasting the S&P 500 index options IVS. In the second-stage they model the dynamics of the cross-sectional first-stage coefficients by means of vector autoregression models. The contribution of this work is to apply the proposed model to the reality of the Brazilian stock options, incipient in terms of liquidity and trading horizon dimensions when compared to the U.S. market, adapting criterians to validate its applicability in this context in statistical and economical sense. The results demonstrate the superiority of this approach over comparable literature, but not the ability to generate abnormal profits in the presence of transaction costs in excess of the benchmark of the risk-free rate. This indicates adaptation to the market efficiency hypothesis.

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46

ANSELMI, GIULIO. "ESSAYS ON OPTION IMPLIED VOLATILITY RISK MEASURES FOR BANKS." Doctoral thesis, Università Cattolica del Sacro Cuore, 2016. http://hdl.handle.net/10280/10402.

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La tesi comprende tre saggi sul ruolo della volatilità implicita per le banche. La tesi è organizzata in tre capitoli. Capitolo I - studia il ruolo di skew e spread della volatilità implicita nel determinare i rendimenti delle azioni bancarie. Capitolo II - analizza gli effetti degli skew della volatilità implicita e della realized volatility sulla leva finanziaria delle banche. Capitolo III - si focalizza sul rapporto tra il coefficiente di liquidità delle banche e le misure per il rischio estratte dalla volatilità (skew, spread, realized volatility).
The thesis comprehends three essays on option implied volatility risk measures for banks. The thesis is organized in three chapters. Chapter I - studies the informational content for banks' stock returns in option's implied volatilities skews and spread. Chapter II - analyzes the effect of volatility risk measures (volatility skew and realized volatility) on banks' leverage. Chapter III - studies the relationship between banks' liquidity ratio and volatility risk measures.

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Pillay, Aveshen. "Extracting risk aversion estimates from option prices/implied volatility." Master's thesis, University of Cape Town, 2010. http://hdl.handle.net/11427/11350.

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The risk neutral density function is the distribution implied by the market price of derivative securities, namely options. It encloses the assumption that arbi-trage free conditions persist in the market. Given the historical evolution of stock prices, an investor will form some belief about the future progression of the stock price.

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48

Zhu, Anyi. "Implied Volatility Modelling." Thesis, 2013. http://hdl.handle.net/10012/8126.

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We propose extensions on calibrating the volatility surface through multi-factor regression models. The proposed models are back-tested against the historical S&P 500 prices during both the volatile and non-volatile periods (as indicated by the VIX index around the same period) and the relevant statistics (adjusted R2-statistics and root-mean-squared-error (RMSE) statistics) are used to assess the ts of the models. Furthermore,both the equal-weighted method and an alternative method by using observed implied volatilities as the weight are deployed and the results produced by the two methods are compared. Finally we also discuss the possibilities of using promptness, instead of time to maturity, in the regression model to better capture the shape of the volatility surface.

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49

Chiu, Hsin-i., and 邱馨儀. "Local Volatility Forecasts from Implied Volatility Surfaces." Thesis, 2007. http://ndltd.ncl.edu.tw/handle/00708201689633290780.

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碩士
國立成功大學
財務金融研究所
95
The major objective of this paper is to investigate the predictive ability of the one-factor stochastic volatility model by extracting helpful information from the implied volatility surface. This model is compared to the GARCH (1, 1) model with respect to forecasting future realized volatility of the underlying asset. We construct the one-factor stochastic volatility model consistent with the theory of implied tree models, which are suggested by Rubinstein (1994), Dupire (1994) and Derman and Kani (1994), and apply the transformation by Kreisler (1998), in which the implied volatility function is included. We analyze the Dow Jones Industrial Average (DJIA) index options and find that the implied volatility surfaces may really exist through estimation process. In predicting the future realized volatility of the underlying asset, the evidence shows that the GARCH (1, 1) model performs better than the one-factor stochastic volatility model and the ad hoc model. Nevertheless, for a 1-week forecast horizon, the one-factor stochastic volatility model’s correlation coefficient between the realized and the forecasted volatility is much more significant than the GARCH (1, 1) model and the ad hoc model, indicating that the one-factor stochastic volatility model subsumes additional information that others do not take into account.

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50

Schnellen, Marina. "Analysis of Implied Volatility Surfaces." Doctoral thesis, 2007. http://hdl.handle.net/11858/00-1735-0000-000D-F225-7.

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