Simple Expected Volatility (SEV) Index: Application to SET50 Index Options

Chatayan Wiphatthanananthakul and Michael McAleer
Additional contact information
Chatayan Wiphatthanananthakul: Faculty of Economics,Chiang Mai University and Chulachomklao Royal Military Academy

No CARF-F-173, CARF F-Series from Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo

Abstract: In 2003, the Chicago Board Options Exchange (CBOE) made two key enhancements to the volatility index (VIX) methodology based on S&P options. The new VIX methodology seems to be based on a complicated formula to calculate expected volatility. In this paper, with the use of Thailand's SET50 Index Options data, we modify the apparently complicated VIX formula to a simple relationship, which has a higher negative correlation between the VIX for Thailand (TVIX) and SET50 Index Options. We show that TVIX provides more accurate forecasts of option prices than the simple expected volatility (SEV) index, but the SEV index outperforms TVIX in forecasting expected volatility. Therefore, the SEV index would seem to be a superior tool as a hedging diversification tool because of the high negative correlation with the volatility index.

Pages: 40 pages
Date: 2009-09
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.carf.e.u-tokyo.ac.jp/old/pdf/workingpaper/fseries/179.pdf (application/pdf)

Related works:
Journal Article: A simple expected volatility (SEV) index: Application to SET50 index options (2010)
Working Paper: A Simple Expected Volatility (SEV) Index: Application to SET50 Index Options (2010)
Working Paper: A Simple Expected Volatility (SEV) Index: Application to SET50 Index Options (2009)
Working Paper: A Simple Expected Volatility (SEV) Index: Application to SET50 Index Options (2009)
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:cfi:fseres:cf173

Access Statistics for this paper

More papers in CARF F-Series from Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo Contact information at EDIRC.
Bibliographic data for series maintained by ().