Asymmetric Volatility and Trading Activity in Index Futures Options
Posted: 22 May 2005
We examine the impact of option trading activity on implied volatility changes to returns in the index futures option market. Controlling for option moneyness, delta-to-option-premium ratio, and liquidity, we find that net buying pressure, profit-maximization behavior, and liquidity are interrelated and affect asymmetric responses of implied volatilities to returns. Implied volatilities of options with more liquidity, a higher exercise price, and a higher delta-to-option-premium ratio have the most profound asymmetric response.
Keywords: Futures options, implied volatility, asymmetric response
JEL Classification: G13
Suggested Citation: Suggested Citation