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Volatilities implied by price changes in the S&P 500 options and futures contracts |
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| Authors: | Jitka Hilliard Wei Li |
| Affiliation: | 1. Department of Finance, College of Business, Auburn University, 313 Lowder Hall, Auburn, AL, 36849, USA 2. Department of Finance, Henry B. Tippie College of Business, The University of Iowa, S276 John Pappajohn Business Building, Iowa City, IA, 52242-1994, USA |
| Abstract: | 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. |
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