Determinants of the implied volatility function on the Italian Stock Market

Beber, Alessandro (2001) Determinants of the implied volatility function on the Italian Stock Market. UNSPECIFIED. (Unpublished)

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    Abstract

    This paper describes the implied volatility function computed from options on the Italian stock market index between 1995 and 1998 and tries to find out potential explanatory variables. We find that the typical smirk observed for S&P500 stock index characterizes also Mib30 stock index. When potential determinants are investigated by a linear Granger Causality test, the important role played by option’s time to expiration, transacted volumes and historical volatility is detected. A possible proxy of portfolio insurance activity does poorly in explaining the observed pattern. Further analysis shows that the dynamic interrelation between the implied volatility function and some determinants could be, to a certain extent, non-linear.

    Item Type: Departmental Technical Report
    Department or Research center: Computer and management sciences
    Subjects: H Social Sciences > HB Economic Theory > HB615 Risk and uncertainty
    H Social Sciences > HG Finance
    Uncontrolled Keywords: Smirk - pricing models - italian options market - Black and Scholes formula
    Report Number: ALEA ; 10
    Repository staff approval on: 12 Dec 2002

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