, Volume 42, Issue 4, pp 599-626
Date: 23 Mar 2013

Volatilities implied by price changes in the S&P 500 options and futures contracts

Abstract

We develop a new volatility measure: the volatility implied by price changes in option contracts and their underlying. We refer to this as price-change implied volatility. We compare moneyness and maturity effects of price-change and implied volatilities, and their performance in delta hedging. We find that delta hedges based on a price-change implied volatility surface outperform hedges based on the traditional implied volatility surface when applied to S&P 500 future options.