The intraday distribution of volatility and the value of wildcard options

Paul Dawson

Journal of Futures Markets, 2000, vol. 20, issue 4, 307-320

Abstract: This study investigates the value of the wildcard option embedded in the American FT‐SE 100 index (SEI) options. Model‐based studies of S&P 100 index options show the embedded wildcard option to have significant value. By contrast, nonparametric tests on SEI options indicate that the wildcard has very little value. The contrasting results arise because U.S. studies observe a high level of volatility during the 15‐minute wildcard period, whereas the 21‐minute wildcard period in London is relatively quiet. The present study highlights the sensitivity of the wildcard value to the intraday distribution of volatility and indicates the difficulty in estimating the wildcard period volatility, since it is itself volatile. © 2000 John Wiley & Sons, Inc. Jrl Fut Mark 20: 307–320, 2000

Date: 2000
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