The Model-Free Implied Volatility and Its Information Content

Review of Financial Studies 18(4), 1305-1342, 2005

38 Pages Posted: 18 Feb 2013

See all articles by George J. Jiang

George J. Jiang

Washington State University

Yisong S. Tian

York University - Schulich School of Business

Date Written: February 17, 2005

Abstract

Britten-Jones and Neuberger (2000) derived a model-free implied volatility under the diffusion assumption. In this article, we extend their model-free implied volatility to asset price processes with jumps and develop a simple method for implementing it using observed option prices. In addition, we perform a direct test of the informational efficiency of the option market using the model-free implied volatility. Our results from the Standard & Poor’s 500 index (SPX) options suggest that the model-free implied volatility subsumes all information contained in the Black-Scholes (B-S) implied volatility and past realized volatility and is a more efficient forecast for future realized volatility.

Suggested Citation

Jiang, George and Tian, Yisong Sam, The Model-Free Implied Volatility and Its Information Content (February 17, 2005). Review of Financial Studies 18(4), 1305-1342, 2005. Available at SSRN: https://ssrn.com/abstract=2220067

George Jiang (Contact Author)

Washington State University ( email )

Department of Finance and Management Science
Carson College of Business
Pullman, WA 99-4746164
United States
509-3354474 (Phone)

HOME PAGE: http://directory.business.wsu.edu/bio.html?username=george.jiang

Yisong Sam Tian

York University - Schulich School of Business ( email )

4700 Keele Street
Toronto, Ontario M3J 1P3
Canada
416-736-2100, ext 77943 (Phone)
416-736-5687 (Fax)

Register to save articles to
your library

Register

Paper statistics

Downloads
710
Abstract Views
2,074
rank
34,812
PlumX Metrics