No-arbitrage implied volatility functions: Empirical evidence from KOSPI 200 index options

Journal of Empirical Finance

Volumn 21, Issue 1, 2013, Pages 36-53

  Kim, Namhyoung ^a   Lee, Jaewook ^b  

^a Pohang University of Science and Technology (POSTECH)   (South Korea)

^b Seoul National University   (South Korea)

Author keywords

Implied volatility surface; Index options; Local smoothing; Local volatility; No arbitrage constraints

Indexed keywords

EID: 84872246191     PISSN: 09275398     EISSN: None     Source Type: Journal    
DOI: 10.1016/j.jempfin.2012.12.007     Document Type: Article

References (26)

1. Bakshi G.S., Cao C., Chen Z.W. Empirical performance of alternative option pricing models. J. Finance 1997, 52:2003-2049.
2. Benko M., Fengler Matthias R., Hrdle Wolfgang Karl, Kopa M. On extracting information implied in options. Comput. Stat. 2007, 22:543-553.
3. Blair B.J., Poon S.H., Taylor S.J. Forecasting S&P 100 volatility: the incremental information content of implied volatilities and high-frequency index returns. J. Econ. 2001, 105:5-26.
4. Breeden D., Litzenberger R. Prices of state-contingent claims implicit in option prices. J. Bus. 1978, 51:621-651.
5. Choi Y., Ok S.C. Effects of rollover strategies and information stability on the performance measures in options markets: and examination of the KOSPI 200 index options market. J. Futur. Mark. 2012, 32:360-388.
6. Dumas B., Fleming J., Whaley R.E. Implied volatility functions: empirical tests. J. Finance 1998, 53:2059-2106.
7. Dupire B. A unified theory of volatility. Pribas Working Paper 1996.
8. Durrleman V. A Note on Initial Volatility Surface 2003, (February).
9. Ederington L., Guan W. Is implied volatility an informationally efficient and effective predictor of future volatility?. J. Risk 2002, 4:29-46.
10. Engle R. Garch 101: the use of ARCH/GARCH models in applied econometrics. J. Econ. Perspect. 2001, 15:157-168.
11. Fengler M. Semiparametric Modeling of Implied Volatility 2005, Springer-Verlag, Berlin Heidelberg.
12. Fengler M. Arbitrage-free smoothing of the implied volatility surface. Quant. Finance 2009, 9:417-428.
13. Gatheral J. The Volatility Surface: a Practitioner's Guide (Wiley Finance) 2006, Wiley, (August).
14. Hastie T., Tibshirani R., Friedman J. The Elements of Statistical Learning 2009, Springer.
15. Heston S.L. A closed-form solutions for options with stochastic volatility with applications to bond and currency options. Rev. Financ. Stud. 1993, 6:327-343.
16. Jackwerrth J.C., Rubinstein M. Recovering Stochastic Processes from Option Prices, Working Paper 2001, University of Konstanz and University of California, Berkely.
17. Kahale N. An arbitrage-free interpolation of volatilities. Risk 2004, 17:102-106.
18. Kim S. The performance of traders' rules in options market. J. Futur. Mark. 2009, 29:999-1020.
19. Kim I.J., Kim S. On the usefulness of implied risk neutral distributions: evidence from Korean KOSPI 200 index options market. J. Risk 2003, 6:93-110. (2003).
20. Kim I.J., Kim S. Empirical comparison of alternative stochastic volatility option pricing models: evidence from Korean KOSPI 200 index market. Pacific-Basin Finance J. 2004, 12:117-142.
21. Kirgiz I. An Empirical Comparison of Alternative Stochastic Volatility Option Pricing Models, Working Paper 2001, Dubai Group.
22. Klaassen F. Improving garch volatility forecasts with regime-switching garch. Empir. Econ. 2002, 27:363-394.
23. Li M., Pearson N.D. A "Horse Race" Among Competing Option Pricing Models Using S&P 500 Index Options, Working Paper 2007, Georgia Institute of Technology and University of Illinois, Urbana-Champaign.
24. Reiner, E., 2000. Calendar spreads, characteristic functions, and variance interpolation. mimeo.
25. Roper M. Arbitrage Free Implied Volatility Surfaces Working Paper 2010.
26. Xu X., Taylor S.J. Conditional volatility and the informational efficiency of the phlx currency options market. J. Bank. Financ. 1995, 19:803-821.