Review of Quantitative Finance and Accounting

, Volume 42, Issue 4, pp 599–626

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

Original Research

DOI: 10.1007/s11156-013-0354-z

Cite this article as:
Hilliard, J. & Li, W. Rev Quant Finan Acc (2014) 42: 599. doi:10.1007/s11156-013-0354-z
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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.

Keywords

Price-change implied volatilityImplied volatilityS&P 500 options and futures contractsDelta hedging

JEL Classification

G13C61

Copyright information

© Springer Science+Business Media New York 2013

Authors and Affiliations

  1. 1.Department of FinanceCollege of Business, Auburn UniversityAuburnUSA
  2. 2.Department of FinanceHenry B. Tippie College of Business, The University of IowaIowa CityUSA