A simple expected volatility (SEV) index: application to SET50 index options

C. Wiphatthanananthakul and Michael McAleer

No EI 2008-35 Revision_Date: 2009-11-06, Econometric Institute Report from Erasmus University Rotterdam, Econometric Institute

Abstract: In 1993, the Chicago Board Options Exchange (CBOE) introduced the Volatility Index, VIX, based on S&P100 options (OEX), which quickly became the benchmark for stock volatility. As VIX is based on real-time option prices, it reflects investors’ consensual view of future expected stock market volatility. In 2003, CBOE made two key enhancements to the VIX methodology. The New VIX is based on an up-to-the-minute market estimation of expected volatility that is calculated by using real-time S&P500 Index (SPX) option bid/ask quotes and a wider range of strike prices rather than just at-the-money series with the market’s expectation of 30-day volatility and using nearby and second-nearby options. The new VIX methodology may appear to be based on a complicated formula to calculate expected volatility. In this paper, with the use of SET50 Index Options data, we simplify the apparently complicated expected volatility formula to a simple relationship, which has a higher negative correlation between the VIX for Thailand (TVIX) and SET50 Index Options.

New Economics Papers: this item is included in nep-fmk and nep-sea
Date: 2008-12-01

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Related works:
Working Paper: A Simple Expected Volatility (SEV) Index: Application to SET50 Index Options (2009)
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Persistent link: http://EconPapers.repec.org/RePEc:dgr:eureir:1765013992

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