Alternative Methods to Estimate Implied Variance: Review and Comparison

Yibing Chen, Cheng-Few Lee, John Lee and Jow-Ran Chang
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Yibing Chen: National Council for Social Security Fund, China
Cheng-Few Lee: Department of Finance and Economics, Rutgers University, USA
John Lee: Center for PBBEF Research, USA
Jow-Ran Chang: Department of Quantitative Finance, National Tsing Hua University, Taiwan
Authors registered in the RePEc Author Service: Cheng Few Lee

Review of Pacific Basin Financial Markets and Policies (RPBFMP), 2018, vol. 21, issue 04, 1-28

Abstract: In this paper, we first review several alternative methods to estimate implied variance. Then we show how the MATLAB computer program can be used to estimate implied variance based upon the Black–Scholes model. In addition, we also discuss how the approximation method derived by Ang et al. (2013) can be used to estimate implied variance. Real-world data from US individual stock options are used to compare the estimation results using three typical alternative methods: regression method proposed by Lai et al., MATLAB computer program approach and approximation method derived by Ang et al. Also, this paper presents the empirical results of China ETF 50 options which were new in the financial markets.

Keywords: Estimate implied variance; MATLAB approach; approximation approach (search for similar items in EconPapers)
Date: 2018
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DOI: 10.1142/S021909151850025X

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