International Transmission of Uncertainty Implicit in Stock Index Option Prices

Abstract

This study examines international equity market integration regarding uncertainty. For that purpose implied volatilities calculated from the market prices of stock index options from the U.S., U.K., German and Finnish markets are analyzed. The results suggest a high degree of integration among the U.S, U.K. and German markets with respect to uncertainty. The U.S. stock market is the leading source of uncertainty since the changes in uncertainty in the U.S stock market are transmitted to the other markets. The German market is the leading source of uncertainty among the investigated European markets.

Keywords: implied volatility, index options, transmission of uncertainty

JEL Classification: G15