Economics at your fingertips  

Modelling the implied volatility surface based on Shanghai 50ETF options

Jinzhong Wang, Shijiang Chen, Qizhi Tao and Ting Zhang

Economic Modelling, 2017, vol. 64, issue C, 295-301

Abstract: We develop a dynamic factor model to forecast the implied volatility surface (IVS) of Shanghai Stock Exchange 50ETF options. Based on the assumption that dynamic change in IVS is mean-reverting and Markovian, we use a state space model to capture the dynamics of IVS, and set the latent factors to be the Ornstein–Uhlenbeck processes. We obtain the optimal estimations of parameters using the Kalman filter algorithm. Empirical results show that our model performs better than the traditional IVS model in terms of fitting ability and prediction performance.

Keywords: G13; C13; Dynamic factor model; Implied volatility surface; Kalman filter; Ornstein–Uhlenbeck process (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
Full text for ScienceDirect subscribers only

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:

DOI: 10.1016/j.econmod.2017.04.009

Access Statistics for this article

Economic Modelling is currently edited by S. Hall and P. Pauly

More articles in Economic Modelling from Elsevier
Bibliographic data for series maintained by Haili He ().

Page updated 2020-05-02
Handle: RePEc:eee:ecmode:v:64:y:2017:i:c:p:295-301