Analysis of the Term Structure of Implied Volatilities

Ronald Heynen, Angelien Kemna and Ton Vorst ()

Journal of Financial and Quantitative Analysis, 1994, vol. 29, issue 1, 31-56

Abstract: From various empirical work, it is well known that the volatility of asset returns changes over time. This might be one of the reasons that implied volatilities differ for options that only differ in time to maturity. We construct models for the relation between short- and long-term implied volatilities based on three different assumptions of stock return volatility behavior, i.e., mean-reverting, GARCH, and EGARCH models. We test these relations on option price data and conclude that EGARCH gives the best description of asset prices and the term structure of options' implied volatilities.

Date: 1994
References: Add references at CitEc
Citations: View citations in EconPapers (78)

Downloads: (external link)
https://www.cambridge.org/core/product/identifier/ ... type/journal_article link to article abstract page (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cup:jfinqa:v:29:y:1994:i:01:p:31-56_00

Access Statistics for this article

More articles in Journal of Financial and Quantitative Analysis from Cambridge University Press Cambridge University Press, UPH, Shaftesbury Road, Cambridge CB2 8BS UK.
Bibliographic data for series maintained by Kirk Stebbing ().