 The evolving dynamics of the Australian SPI 200 implied volatility surfaceHassan Tanha and Michael Dempsey Journal of International Financial Markets, Institutions and Money, 2016, vol. 43, issue C, 44-57 Abstract: This paper is concerned with the evolutionary behaviour of implied volatility patterns, which identifies vega uncertainty. Using a principal component analysis (PCA), we compare reported results in US and European markets with our findings here for Australian markets. In this way, we seek to establish the degree to which prior findings have “universality” as opposed to being strictly the outcome of a particular market at a particular time. In a broad sense, we are able to reproduce prior findings. But there are differences. Prior studies find that prevailing shocks impact primarily uniformly across options independently of moneyness (a “parallel shift”) with a second effect (a “Z-shaped twist”) that impacts differentially in relation to the option's degree of moneyness. We find that the “parallel shift” can be interpreted as applying primarily to in-the-money (ITM) options and the Z-shaped twist to out-of-the-money (OTM) options. As a result, the overall effects are interpreted in relation to a volatility smile. Keywords: Implied volatility; VIX; Volatility forecasts; Informational efficiency (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:intfin:v:43:y:2016:i:c:p:44-57 DOI: 10.1016/j.intfin.2016.03.006 Access Statistics for this article Journal of International Financial Markets, Institutions and Money is currently edited by I. Mathur and C. J. Neely More articles in Journal of International Financial Markets, Institutions and Money from Elsevier |
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