Three essays in options pricing: 1. Volatilities implied by price changes in the S&P 500 options and future contracts 2. Price changes in the S&P options and futures contracts: a regression analysis 3. Hedging price changes in the S&P 500 options and futures contracts: the effect of different measures of implied volatility

In this work, I develop a new volatility measure; the volatility implied by price changes in option contracts and their underlyings. I refer to this as implied price change volatility. First, I examine the time series behavior of implied price change volatility and investigate possible moneyness and maturity effects. I compare these characteristics to those of the usual implied volatility measure and the historical volatility of the S&P 500 index. Then, I investigate the performance of the implied price change volatility in a regression setup and in hedging applications. I compare the performance of hedges using daily updated implied price change volatility and implied volatility and their averages. Data used in this study are tick-data on pit traded S&P 500 futures options and their underlying from 1998 to 2006. I find that implied price change volatility has similar time series behavior and moneyness and maturity effects as implied volatility. However, the price change volatility is more disperse than implied volatility. Hedges using daily updated volatilities consistently outperform hedges based on average volatilities. In addition, the delta hedges based on directly estimated implied price change volatility outperform even the delta-gamma and delta-vega hedges for call options. This finding suggests that using volatilities estimated from price changes rather than price levels may result in more effective hedges for call options.

Name thesis:degree_name

Doctor of Philosophy (PhD)

Level thesis:degree_level

Dissertation

Discipline thesis:degree_discipline

Finance and Financial Management

Grantor

Finance (Business Administration)

Year dc:date.available

2008

Author dc:creator

• Hilliard, Jitka

• S&P 500 futures
• implied price change volatility
• Implied volatility
• hedging
• option pricing

Statement dc:rights

• unrestricted
• Release the entire work immediately for access worldwide.

Identifier

etd-11122008-110301
https://repository.lsu.edu/gradschool_dissertations/477

OAI identifier oai:identifier

oai:repository.lsu.edu:gradschool_dissertations-1476