Cause-and-effect between implied volatility and options price
Article
Article Title | Cause-and-effect between implied volatility and options price |
---|---|
ERA Journal ID | 211566 |
40538 | |
Article Category | Article |
Authors | |
Author | Hoque, Ariful |
Journal Title | Academy of Taiwan Business Management Review |
Academy of Taiwan Business Management Revie | |
Journal Citation | 6 (3), pp. 111-117 |
Number of Pages | 7 |
Year | 2010 |
Publisher | Taiwan Institute of Business Administration |
Place of Publication | Taiwan |
ISSN | 1813-0534 |
Web Address (URL) | http://www.jtiba.com/ |
Abstract | Implied volatility is widely believed to be the best underlying exchange rate volatility forecast for pricing currency options. To measure unbiased implied volatility requires accurate options price. Unbiased implied volatility is also needed for pricing options correctly. Consequently, an interesting question is raised, is it options price that causes the implied volatility or is it the implied volatility that causes options price? This study employs the Granger causality test to address this critical issue for six major currency options are traded in Philadelphia Stock Exchange. The test results identify the bilateral Granger causality between implied volatility and options price, which distorts options pricing accuracy. We, therefore, cannot conclude that the implied volatility is the best choice for pricing currency options. |
Keywords | implied volatility; currency options price; Granger causality test; MATLAB; bilateral causality |
ANZSRC Field of Research 2020 | 350202. Finance |
380110. International economics | |
380203. Economic models and forecasting | |
Public Notes | Copyright Taiwan Institute of Business Administration. |
Byline Affiliations | School of Accounting, Economics and Finance |
https://research.usq.edu.au/item/q00y9/cause-and-effect-between-implied-volatility-and-options-price
2023
total views7
total downloads1
views this month0
downloads this month