Term Structure Analysis of Option Implied Volatility in the Brazilian Market

Applied Mathematical Sciences, Forthcoming

14 Pages Posted: 8 Mar 2017

See all articles by Carlos Heitor Campani

Carlos Heitor Campani

The COPPEAD Graduate School of Business - Federal University of Rio de Janeiro (UFRJ)

Carlos Eduardo Fucci

Universidade Federal do Rio de Janeiro (UFRJ) - Alberto Luiz Coimbra Institute for Graduate Studies and Research in Engineering (COPPE)

Date Written: March 4, 2017

Abstract

This paper aims at predicting the volatility term structure of a given asset. The model is based on the GARCH modeling of the asset's volatility, from which the term structure is derived. We test if the model is able to accommodate the term structure response to volatility shocks. Using data from two important Brazilian companies, the model indeed improved standard predictions for the volatility term structure by relating the size of the volatility shock to the maturity of the option used to estimate the asset's volatility.

Keywords: Volatility term structure, Volatility shocks, Brazilian options market

JEL Classification: C02, G15, G17

Suggested Citation

Campani, Carlos Heitor and Fucci, Carlos Eduardo, Term Structure Analysis of Option Implied Volatility in the Brazilian Market (March 4, 2017). Applied Mathematical Sciences, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2927546

Carlos Heitor Campani (Contact Author)

The COPPEAD Graduate School of Business - Federal University of Rio de Janeiro (UFRJ) ( email )

Rua Pascoal Lemme n. 355
Rio de Janeiro, 21949-961
Brazil

HOME PAGE: http://www.coppead.ufrj.br

Carlos Eduardo Fucci

Universidade Federal do Rio de Janeiro (UFRJ) - Alberto Luiz Coimbra Institute for Graduate Studies and Research in Engineering (COPPE) ( email )

Rua 36 n. 355
Rio de Janeiro, 21949-900
Brazil

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