Empirical performance of a model-free volatility against the different option strike size discreteness

This study investigates whether the different step size of option strike price discreteness contributes to the performance of a model-free variance in approximating the real-value volatility. The volatility is proxied by the volatility implied by the Black-Scholes-Merton option pricing model. We co...

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Main Authors:	Harun, Hanani Farhah, Abdullah, Mimi Hafizah
Format:	Conference or Workshop Item
Language:	English
Published:	2018
Subjects:	QA Mathematics QA276 Mathematical Statistics
Online Access:	http://irep.iium.edu.my/73560/ http://irep.iium.edu.my/73560/12/73560%20programme%20and%20unpublished%20paper.pdf

id	iium-73560
recordtype	eprints
spelling	iium-735602019-08-08T01:21:58Z http://irep.iium.edu.my/73560/ Empirical performance of a model-free volatility against the different option strike size discreteness Harun, Hanani Farhah Abdullah, Mimi Hafizah QA Mathematics QA276 Mathematical Statistics This study investigates whether the different step size of option strike price discreteness contributes to the performance of a model-free variance in approximating the real-value volatility. The volatility is proxied by the volatility implied by the Black-Scholes-Merton option pricing model. We concentrate on examining the respective relationship governing the function of approximation error against the strike price step. A sample data extracted from DJIA index options data is used, which covers the period from January 2009 until the end of 2015. This study finds that the best strike price step size that asserts the most minimum approximation error by practice is a step size of $1.00. There exists a linear relationship between strike price discreteness size and approximation error. The choice of the different step size of strike price discreteness is in fact contributes to the performance of a model-free variance in approximating the real-value volatility. 2018 Conference or Workshop Item NonPeerReviewed application/pdf en http://irep.iium.edu.my/73560/12/73560%20programme%20and%20unpublished%20paper.pdf Harun, Hanani Farhah and Abdullah, Mimi Hafizah (2018) Empirical performance of a model-free volatility against the different option strike size discreteness. In: Conference on Mathematics, Informatics and Statistics (CMIS2018), 29th-31st October 2018, Kuala Terengganu, Terengganu. (Unpublished)
repository_type	Digital Repository
institution_category	Local University
institution	International Islamic University Malaysia
building	IIUM Repository
collection	Online Access
language	English
topic	QA Mathematics QA276 Mathematical Statistics
spellingShingle	QA Mathematics QA276 Mathematical Statistics Harun, Hanani Farhah Abdullah, Mimi Hafizah Empirical performance of a model-free volatility against the different option strike size discreteness
description	This study investigates whether the different step size of option strike price discreteness contributes to the performance of a model-free variance in approximating the real-value volatility. The volatility is proxied by the volatility implied by the Black-Scholes-Merton option pricing model. We concentrate on examining the respective relationship governing the function of approximation error against the strike price step. A sample data extracted from DJIA index options data is used, which covers the period from January 2009 until the end of 2015. This study finds that the best strike price step size that asserts the most minimum approximation error by practice is a step size of $1.00. There exists a linear relationship between strike price discreteness size and approximation error. The choice of the different step size of strike price discreteness is in fact contributes to the performance of a model-free variance in approximating the real-value volatility.
format	Conference or Workshop Item
author	Harun, Hanani Farhah Abdullah, Mimi Hafizah
author_facet	Harun, Hanani Farhah Abdullah, Mimi Hafizah
author_sort	Harun, Hanani Farhah
title	Empirical performance of a model-free volatility against the different option strike size discreteness
title_short	Empirical performance of a model-free volatility against the different option strike size discreteness
title_full	Empirical performance of a model-free volatility against the different option strike size discreteness
title_fullStr	Empirical performance of a model-free volatility against the different option strike size discreteness
title_full_unstemmed	Empirical performance of a model-free volatility against the different option strike size discreteness
title_sort	empirical performance of a model-free volatility against the different option strike size discreteness
publishDate	2018
url	http://irep.iium.edu.my/73560/ http://irep.iium.edu.my/73560/12/73560%20programme%20and%20unpublished%20paper.pdf
first_indexed	2023-09-18T21:44:17Z
last_indexed	2023-09-18T21:44:17Z
_version_	1777413346039955456

Empirical performance of a model-free volatility against the different option strike size discreteness

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