Volatilities implied by price changes in the S&P 500 options and futures contracts
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.
KeywordsPrice-change implied volatility Implied volatility S&P 500 options and futures contracts Delta hedging
JEL ClassificationG13 C61
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