Original Research

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

  • Jitka HilliardAffiliated withDepartment of Finance, College of Business, Auburn University Email author 
  • , Wei LiAffiliated withDepartment of Finance, Henry B. Tippie College of Business, The University of Iowa

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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 volatility Implied volatility S&P 500 options and futures contracts Delta hedging

JEL Classification

G13 C61