 The determinants of exchange settlement practices and the implication of volatility smile: Evidence from the Taiwan Futures ExchangeWen-Ming Szu, Ming-Chun Wang and Wan-Ru Yang International Review of Economics & Finance, 2011, vol. 20, issue 4, 826-838 Abstract: This paper proposes that the Taiwan Futures Exchange (TAIFEX) adopts a linear extrapolation method to set the settlement price for the Taiwan Stock Exchange Capitalization Weighted Stock Index (TAIEX) options with less liquidity and thin trading. The empirical results indicate that the settlement-price-determined implied volatility is a smile function, consistent with the pattern of the market-price-determined implied volatility. Moreover, we examine the influence of economic factors on the TAIFEX's decision regarding the parameters of implied volatility function. Compared with the economic determinants of market-force-driven volatility parameters, the TAIFEX inappropriately values the impacts of the parameters of prior days, current stock returns, distribution of stock returns, long-term measurement of the stock market trend, market transaction cost, and time to maturity. Keywords: Implied; volatility; Volatility; smile; TAIEX; options (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:reveco:v:20:y:2011:i:4:p:826-838 Access Statistics for this article International Review of Economics & Finance is currently edited by H. Beladi and C. Chen More articles in International Review of Economics & Finance from Elsevier |
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