Option pricing using high-frequency futures prices

Stavros Degiannakis, Christos Floros, Thomas Poufinas, George Filis and Konstantinos Gkillas

Journal of Risk

Abstract: Option pricing depends heavily on the volatility measure used. We examine two potential routes to improve the outcome of option pricing: extracting the variance from futures prices instead of the underlying asset prices, and calculating the variance in different frequencies with intraday data instead of daily closing prices. We perform a valuation of call and put options for six volatility measures, namely unconditional volatility, historical volatility, conditional volatility, realized volatility and;implied volatility, to examine which one gives the optimal result versus the (market) price. We show that the implied volatility exhibits the lowest deviation from the market price, as judged by the mean and the standard deviation of the relative difference of the option value from the market price (as calculated using each of the volatility measures). Also, using econometric models, we find the determinants of the deviation of the calculated option value from the actual market price. We show that the time to expiration, the spread and the moneyness, as well as their squares, are all statistically significant at all levels for all volatility measures. Moreover, the time-to-expiration coefficient implies that all volatility measures yield option values closer to the observed market price for shorter times to expiration.

References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.risk.net/journal-of-risk/7834591/optio ... uency-futures-prices (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:rsk:journ4:7834591

Access Statistics for this article

More articles in Journal of Risk from Journal of Risk
Bibliographic data for series maintained by Thomas Paine (maintainer@infopro-digital.com).