Variance Premium and Implied Volatility in a Low-Liquidity Option Market*
Autor(a) principal: | |
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Data de Publicação: | 2017 |
Outros Autores: | , , |
Tipo de documento: | Artigo |
Idioma: | eng |
Título da fonte: | Repositório Institucional da UNESP |
Texto Completo: | http://dx.doi.org/10.5935/0034-7140.20170001 http://hdl.handle.net/11449/211094 |
Resumo: | We propose an implied volatility index for Brazil that we name IVol-BR. The index is based on daily market prices of options over Ibovespa-an option market with relatively low liquidity and few option strikes. Our methodology combines standard international methodology used in high-liquidity markets with adjustments that take into account the low liquidity in Brazilian option markets. We do a number of empirical tests to validate the IVol-BR. First, we show that the IVol-BR has significant predictive power over future volatility of equity returns not contained in traditional volatility forecasting variables. Second, we decompose the squared IVol-BR into (i) the expected variance of stock returns and (ii) the equity variance premium. This decomposition is of interest since the equity variance premium directly relates to the representative investor risk aversion. Finally, assuming Bollerslev, Tauchen, & Zhou (2009) functional form, we produce a time-varying risk aversion measure for the Brazilian investor. We empirically show that risk aversion is positively related to expected returns, as theory suggests. |
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Variance Premium and Implied Volatility in a Low-Liquidity Option Market*Volatility IndexPredictabilityRisk AversionEquity Variance PremiumWe propose an implied volatility index for Brazil that we name IVol-BR. The index is based on daily market prices of options over Ibovespa-an option market with relatively low liquidity and few option strikes. Our methodology combines standard international methodology used in high-liquidity markets with adjustments that take into account the low liquidity in Brazilian option markets. We do a number of empirical tests to validate the IVol-BR. First, we show that the IVol-BR has significant predictive power over future volatility of equity returns not contained in traditional volatility forecasting variables. Second, we decompose the squared IVol-BR into (i) the expected variance of stock returns and (ii) the equity variance premium. This decomposition is of interest since the equity variance premium directly relates to the representative investor risk aversion. Finally, assuming Bollerslev, Tauchen, & Zhou (2009) functional form, we produce a time-varying risk aversion measure for the Brazilian investor. We empirically show that risk aversion is positively related to expected returns, as theory suggests.Nós propomos um índice de volatilidade implícita para o mercado acionário do Brasil que chamamos de IVol-BR. O índice é baseado nos preços diários das opções sobre o Ibovespa-um mercado de opções com liquidez relativamente baixa e poucos preços de exercício. Nossa metodologia combina a metodologia internacional padrão usada em mercados de alta liquidez com ajustes que levam em conta a baixa liquidez do mercado brasileiro. Conduzimos uma variedade de testes empíricos a fim de validar o IVol-BR. Em primeiro lugar, demonstramos que o IVol-BR possui um poder de previsão significativo sobre a volatilidade futura do retorno do Ibovespa que não é encontrado em variáveis de previsão de volatilidade tradicionais. Em segundo lugar, decompomos o quadrado do IVol-BR em (i) a variância esperada do retorno e (ii) o prêmio de variância. Essa decomposição é de interesse porque o prêmio de variância se relaciona diretamente com a aversão a risco do investidor representativo. Finalmente, assumindo a forma funcional de Bollerslev, Tauchen, & Zhou (2009), produzimos uma medida de aversão a risco variante no tempo para o investidor brasileiro. Mostramos empiricamente que essa aversão a risco é positivamente correlacionada com os retornos esperados, como a teoria sugere.Universidade de São Paulo, Faculdade de Economia, Administração e ContabilidadeUSP, FEAFundação Getúlio VargasUniversidade de São Paulo (USP)Astorino, Eduardo SanchezChague, FernandoGiovannetti, BrunoSilva, Marcos Eugênio Da2021-07-14T10:19:10Z2021-07-14T10:19:10Z2017info:eu-repo/semantics/publishedVersioninfo:eu-repo/semantics/article3-28application/pdfhttp://dx.doi.org/10.5935/0034-7140.20170001Revista Brasileira de Economia. Fundação Getúlio Vargas, v. 71, n. 1, p. 3-28, 2017.0034-71401806-9134http://hdl.handle.net/11449/21109410.5935/0034-7140.20170001S0034-71402017000100003S0034-71402017000100003.pdfSciELOreponame:Repositório Institucional da UNESPinstname:Universidade Estadual Paulista (UNESP)instacron:UNESPengRevista Brasileira de Economiainfo:eu-repo/semantics/openAccess2023-11-26T06:13:36Zoai:repositorio.unesp.br:11449/211094Repositório InstitucionalPUBhttp://repositorio.unesp.br/oai/requestopendoar:29462024-08-05T18:47:24.777914Repositório Institucional da UNESP - Universidade Estadual Paulista (UNESP)false |
dc.title.none.fl_str_mv |
Variance Premium and Implied Volatility in a Low-Liquidity Option Market* |
title |
Variance Premium and Implied Volatility in a Low-Liquidity Option Market* |
spellingShingle |
Variance Premium and Implied Volatility in a Low-Liquidity Option Market* Astorino, Eduardo Sanchez Volatility Index Predictability Risk Aversion Equity Variance Premium |
title_short |
Variance Premium and Implied Volatility in a Low-Liquidity Option Market* |
title_full |
Variance Premium and Implied Volatility in a Low-Liquidity Option Market* |
title_fullStr |
Variance Premium and Implied Volatility in a Low-Liquidity Option Market* |
title_full_unstemmed |
Variance Premium and Implied Volatility in a Low-Liquidity Option Market* |
title_sort |
Variance Premium and Implied Volatility in a Low-Liquidity Option Market* |
author |
Astorino, Eduardo Sanchez |
author_facet |
Astorino, Eduardo Sanchez Chague, Fernando Giovannetti, Bruno Silva, Marcos Eugênio Da |
author_role |
author |
author2 |
Chague, Fernando Giovannetti, Bruno Silva, Marcos Eugênio Da |
author2_role |
author author author |
dc.contributor.none.fl_str_mv |
Universidade de São Paulo (USP) |
dc.contributor.author.fl_str_mv |
Astorino, Eduardo Sanchez Chague, Fernando Giovannetti, Bruno Silva, Marcos Eugênio Da |
dc.subject.por.fl_str_mv |
Volatility Index Predictability Risk Aversion Equity Variance Premium |
topic |
Volatility Index Predictability Risk Aversion Equity Variance Premium |
description |
We propose an implied volatility index for Brazil that we name IVol-BR. The index is based on daily market prices of options over Ibovespa-an option market with relatively low liquidity and few option strikes. Our methodology combines standard international methodology used in high-liquidity markets with adjustments that take into account the low liquidity in Brazilian option markets. We do a number of empirical tests to validate the IVol-BR. First, we show that the IVol-BR has significant predictive power over future volatility of equity returns not contained in traditional volatility forecasting variables. Second, we decompose the squared IVol-BR into (i) the expected variance of stock returns and (ii) the equity variance premium. This decomposition is of interest since the equity variance premium directly relates to the representative investor risk aversion. Finally, assuming Bollerslev, Tauchen, & Zhou (2009) functional form, we produce a time-varying risk aversion measure for the Brazilian investor. We empirically show that risk aversion is positively related to expected returns, as theory suggests. |
publishDate |
2017 |
dc.date.none.fl_str_mv |
2017 2021-07-14T10:19:10Z 2021-07-14T10:19:10Z |
dc.type.status.fl_str_mv |
info:eu-repo/semantics/publishedVersion |
dc.type.driver.fl_str_mv |
info:eu-repo/semantics/article |
format |
article |
status_str |
publishedVersion |
dc.identifier.uri.fl_str_mv |
http://dx.doi.org/10.5935/0034-7140.20170001 Revista Brasileira de Economia. Fundação Getúlio Vargas, v. 71, n. 1, p. 3-28, 2017. 0034-7140 1806-9134 http://hdl.handle.net/11449/211094 10.5935/0034-7140.20170001 S0034-71402017000100003 S0034-71402017000100003.pdf |
url |
http://dx.doi.org/10.5935/0034-7140.20170001 http://hdl.handle.net/11449/211094 |
identifier_str_mv |
Revista Brasileira de Economia. Fundação Getúlio Vargas, v. 71, n. 1, p. 3-28, 2017. 0034-7140 1806-9134 10.5935/0034-7140.20170001 S0034-71402017000100003 S0034-71402017000100003.pdf |
dc.language.iso.fl_str_mv |
eng |
language |
eng |
dc.relation.none.fl_str_mv |
Revista Brasileira de Economia |
dc.rights.driver.fl_str_mv |
info:eu-repo/semantics/openAccess |
eu_rights_str_mv |
openAccess |
dc.format.none.fl_str_mv |
3-28 application/pdf |
dc.publisher.none.fl_str_mv |
Fundação Getúlio Vargas |
publisher.none.fl_str_mv |
Fundação Getúlio Vargas |
dc.source.none.fl_str_mv |
SciELO reponame:Repositório Institucional da UNESP instname:Universidade Estadual Paulista (UNESP) instacron:UNESP |
instname_str |
Universidade Estadual Paulista (UNESP) |
instacron_str |
UNESP |
institution |
UNESP |
reponame_str |
Repositório Institucional da UNESP |
collection |
Repositório Institucional da UNESP |
repository.name.fl_str_mv |
Repositório Institucional da UNESP - Universidade Estadual Paulista (UNESP) |
repository.mail.fl_str_mv |
|
_version_ |
1808128979618496512 |