Department of Economics and Business Economics

The Fine Structure of Equity-Index Option Dynamics

Research output: Working paperResearch

Standard

The Fine Structure of Equity-Index Option Dynamics. / Andersen, Torben G.; Bondarenko, Oleg; Todorov, Viktor; Tauchen, George.

Aarhus : Institut for Økonomi, Aarhus Universitet, 2013.

Research output: Working paperResearch

Harvard

Andersen, TG, Bondarenko, O, Todorov, V & Tauchen, G 2013 'The Fine Structure of Equity-Index Option Dynamics' Institut for Økonomi, Aarhus Universitet, Aarhus.

APA

Andersen, T. G., Bondarenko, O., Todorov, V., & Tauchen, G. (2013). The Fine Structure of Equity-Index Option Dynamics. Aarhus: Institut for Økonomi, Aarhus Universitet. CREATES Research Papers, No. 2013-52

CBE

Andersen TG, Bondarenko O, Todorov V, Tauchen G. 2013. The Fine Structure of Equity-Index Option Dynamics. Aarhus: Institut for Økonomi, Aarhus Universitet.

MLA

Andersen, Torben G. et al. The Fine Structure of Equity-Index Option Dynamics. Aarhus: Institut for Økonomi, Aarhus Universitet. (CREATES Research Papers; Journal number 2013-52). 2013., 32 p.

Vancouver

Andersen TG, Bondarenko O, Todorov V, Tauchen G. The Fine Structure of Equity-Index Option Dynamics. Aarhus: Institut for Økonomi, Aarhus Universitet. 2013 Dec 30.

Author

Andersen, Torben G. ; Bondarenko, Oleg ; Todorov, Viktor ; Tauchen, George. / The Fine Structure of Equity-Index Option Dynamics. Aarhus : Institut for Økonomi, Aarhus Universitet, 2013. (CREATES Research Papers; No. 2013-52).

Bibtex

@techreport{bc07a6ae82c5401d8514714da9a9b116,
title = "The Fine Structure of Equity-Index Option Dynamics",
abstract = "We analyze the high-frequency dynamics of S&P 500 equity-index option prices by constructing an assortment of implied volatility measures. This allows us to infer the underlying fine structure behind the innovations in the latent state variables driving the movements of the volatility surface. In particular, we focus attention on implied volatilities covering a wide range of moneyness (strike/underlying stock price), which load differentially on the different latent state variables. We conduct a similar analysis for high-frequency observations on the VIX volatility index as well as on futures written on it. We find that the innovations in the risk-neutral intensity of the negative jumps in the S&P 500 index over small time scales are best described via non-Gaussian shocks, i.e., jumps. On the other hand, the innovations over small time scales of the diffusive volatility are best modeled as Gaussian with occasional jumps.",
keywords = "VPIN, high-frequency data, implied volatility, jump activity, Kolmogorov-Smirnov test, stable process, stochastic volatility, VIX index",
author = "Andersen, {Torben G.} and Oleg Bondarenko and Viktor Todorov and George Tauchen",
year = "2013",
month = "12",
day = "30",
language = "English",
series = "CREATES Research Papers",
publisher = "Institut for {\O}konomi, Aarhus Universitet",
number = "2013-52",
type = "WorkingPaper",
institution = "Institut for {\O}konomi, Aarhus Universitet",

}

RIS

TY - UNPB

T1 - The Fine Structure of Equity-Index Option Dynamics

AU - Andersen, Torben G.

AU - Bondarenko, Oleg

AU - Todorov, Viktor

AU - Tauchen, George

PY - 2013/12/30

Y1 - 2013/12/30

N2 - We analyze the high-frequency dynamics of S&P 500 equity-index option prices by constructing an assortment of implied volatility measures. This allows us to infer the underlying fine structure behind the innovations in the latent state variables driving the movements of the volatility surface. In particular, we focus attention on implied volatilities covering a wide range of moneyness (strike/underlying stock price), which load differentially on the different latent state variables. We conduct a similar analysis for high-frequency observations on the VIX volatility index as well as on futures written on it. We find that the innovations in the risk-neutral intensity of the negative jumps in the S&P 500 index over small time scales are best described via non-Gaussian shocks, i.e., jumps. On the other hand, the innovations over small time scales of the diffusive volatility are best modeled as Gaussian with occasional jumps.

AB - We analyze the high-frequency dynamics of S&P 500 equity-index option prices by constructing an assortment of implied volatility measures. This allows us to infer the underlying fine structure behind the innovations in the latent state variables driving the movements of the volatility surface. In particular, we focus attention on implied volatilities covering a wide range of moneyness (strike/underlying stock price), which load differentially on the different latent state variables. We conduct a similar analysis for high-frequency observations on the VIX volatility index as well as on futures written on it. We find that the innovations in the risk-neutral intensity of the negative jumps in the S&P 500 index over small time scales are best described via non-Gaussian shocks, i.e., jumps. On the other hand, the innovations over small time scales of the diffusive volatility are best modeled as Gaussian with occasional jumps.

KW - VPIN, high-frequency data, implied volatility, jump activity, Kolmogorov-Smirnov test, stable process, stochastic volatility, VIX index

M3 - Working paper

T3 - CREATES Research Papers

BT - The Fine Structure of Equity-Index Option Dynamics

PB - Institut for Økonomi, Aarhus Universitet

CY - Aarhus

ER -