Essays on Option Pricing and Option Trading Volume

• Main Authors: Wang, Chih-Wei, 王志瑋
• Other Authors: Jou, Yow-Jen
• Format: Others
• Language: en_US
• Published: 2013
• Online Access: http://ndltd.ncl.edu.tw/handle/72581334238537233678

博士 === 國立交通大學 === 財務金融研究所 === 101 === This dissertation consists of two separate issues. The first issue is we extend Log-HAR option pricing model, which is more convenient compared to other option pricing models associated with realized volatility in the way of simpler estimation procedure. In addition, we test the empirical implications of HAR-type models in the S&;P 500 index options market with the comparison of the NGARCH option pricing model that has been documented as the best model in pricing options among GARCH-type models. Our empirical analysis is based on options traded from July 3, 2007 to December 31, 2008 covering the recent financial crisis, where has never been discussed in existing literature. Overall, we find that the HAR-type models successfully predict out-of-sample option prices probably because they are based on realized volatilities, which are closer to expected volatility (VIX) in financial markets. However, it seems to exist the mixed result between the Log-HAR and the HARG models in pricing options since the Log-HAR is better than the HARG in times of turmoil, while it is worse during the rather unstable period. The second issue is related to informed investors can predict future index returns in emerging markets like Taiwan. Unlike previous empirical results, we find that in more recent periods, the put-call ratio of domestic institutional investors show significant predictive power for daily TAIEX returns, except during the 2008 financial crisis. In contrast, the put-call ratio of foreign institutional investors only has weak predictability for the TAIEX returns prior to the severe global market downturn in late 2008. We further explore the intraday lead-lag relationship among index returns and put-call ratios of different trader types. Our results show that only the trading of domestic institutional investors possesses predictive capability for intraday TAIEX returns prior to the 2008 financial crisis. During the 2008 financial crisis, intraday TAIEX returns significantly lead option trades of foreign and domestic institutional investors, suggesting that although institutional investors closely watch and react to market fluctuations, they are unable to predict market movement beforehand.