Volatility Leadership Among Index Options

39 Pages Posted: 13 Sep 2016

See all articles by Stephen Figlewski

Stephen Figlewski

New York University - Stern School of Business

Anja Frommherz

University of Basel - Department of Finance

Date Written: June 30, 2016

Abstract

Equity options are not only an attractive trading vehicle due to the high leverage they offer, they also enable investors to trade their volatility expectations. With high-resolution option data, we analyze the volatility information embedded in index options with different moneyness and maturity. This study sets out to characterize the volatility process of co-integrated assets by exploiting implied volatilities in a cross-sectional options analysis. For the S&P 500 index market, we find that on both the price as well as the volatility level, the ETF market seems to be most efficient with regard to transmitting price and volatility information. Looking at the options separately, our study suggests that slightly out-of-the-money put options contain more volatility information than either at-the-money put or call options.

Keywords: Volatility Leadership; Implied Volatilities; Index Options; Information Shares

JEL Classification: G13; G14

Suggested Citation

Figlewski, Stephen and Frommherz, Anja, Volatility Leadership Among Index Options (June 30, 2016). Available at SSRN: https://ssrn.com/abstract=2837536 or http://dx.doi.org/10.2139/ssrn.2837536

Stephen Figlewski

New York University - Stern School of Business ( email )

44 West 4th Street
Department of Finance Suite 9-160
New York, NY 10012-1126
United States
212-998-0712 (Phone)
212-995-4220 (Fax)

Anja Frommherz (Contact Author)

University of Basel - Department of Finance ( email )

Peter Merian-Weg 6
Basel, 4002
Switzerland

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