Net Buying Pressure Explains Implied Volatility Smile Effect

• Main Authors: Shu-Chen Chiang, 姜書甄
• Other Authors: William T. Lin
• Format: Others
• Language: zh-TW
• Published: 2005
• Online Access: http://ndltd.ncl.edu.tw/handle/13174708182978072287

碩士 === 淡江大學 === 財務金融學系碩士班 === 93 === This study takes the Taiwan Index Option (TXO) to an empirical analysis. The topics we explore and their conclusions can be devided into the following three parts. First, we discuss the relationship between the implied volatility level and net buying pressure. For the call options, implied volatilities and net buying pressure are positively related to exercise prices. For the put options, implied volatilities and net buying pressure are negative related to exercise prices. This result support that net buying pressure can explain TXO implied volatility smile effect. Second, we discuss the contemporary relation of implied volatility changes and net buying pressure. The empirical indicates that contemporary implied volatility changes are positive relatived to net buying pressure, and contemporary implied volatility changes are negative relatived to spot index pricse return, and contemporary implied volatility changes are positive relatived to spot index trading volume, and contemporary implied volatility changes are negative relatived to prior implied volatility changes. At last, simulated option writing trading strategies find that writing net buying pressure options can generate positive abnormal returns.