The volatility structure implied by options on the SPI futures contract

Research output: Contribution to journalArticleResearchpeer-review

3 Citations (Scopus)

Abstract

The Asay (1982) option pricing model prices options on futures contracts where the premia are margined. The model assumes that the volatility of the underlying futures contract is constant over the life of the option. However it is an empirical observation in many markets that options on the same underlying futures contract with the same maturity, but at different strikes, trade at different implied volatilities. Since the 1987 crash, it has been documented that in many markets the volatility implied by out-of-the-money put options is higher than that implied by out-of-the-money call options. This phenomenon has become known as the 'volatility skew'. This paper examines the volatility structure for options on the SPI futures contract over the period June 1993 to June 1994, and provides theoretical explanations consistent with its shape.

Original languageEnglish
Pages (from-to)115-130
Number of pages16
JournalAustralian Journal of Management
Volume24
Issue number2
DOIs
Publication statusPublished - 1 Dec 1999

Keywords

  • Asay Model
  • Volatility Skew
  • Volatility Smile

Cite this

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The volatility structure implied by options on the SPI futures contract. / Brown, Christine A.

In: Australian Journal of Management, Vol. 24, No. 2, 01.12.1999, p. 115-130.

Research output: Contribution to journalArticleResearchpeer-review

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