Pricing Nikkei 225 options using realized volatility / Masato Ubukata and Toshiaki Watanabe.
"This article analyzes whether daily realized volatility, which is the sum of squared intraday returns over a day, is useful for option pricing. Different realized volatilities are calculated with or without taking account of microstructure noise and with or without using overnight and lunch-ti...
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| Main Author: | |
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| Corporate Author: | |
| Other Authors: | |
| Format: | Book |
| Language: | English |
| Published: |
Tokyo, Japan :
Institute for Monetary and Economic Studies, Bank of Japan,
[2011]
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| Series: | IMES discussion paper series ;
no. 2011-E-18. |
| Subjects: |
MARC
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| 100 | 1 | |a Ubukata, Masato. | |
| 245 | 1 | 0 | |a Pricing Nikkei 225 options using realized volatility / |c Masato Ubukata and Toshiaki Watanabe. |
| 260 | |a Tokyo, Japan : |b Institute for Monetary and Economic Studies, Bank of Japan, |c [2011] | ||
| 300 | |a 40 pages : |b illustrations ; |c 30 cm. | ||
| 336 | |a text |b txt |2 rdacontent. | ||
| 337 | |a unmediated |b n |2 rdamedia. | ||
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| 490 | 1 | |a IMES discussion paper series ; |v discussion paper no. 2011-E-18. | |
| 500 | |a "JEL classification: C22, C52, G13"--1st preliminary page. | ||
| 500 | |a "August 2011"--1st preliminary page. | ||
| 504 | |a Includes bibliographical references (pages 20-24) | ||
| 530 | |a Also freely available online. | ||
| 520 | 3 | |a "This article analyzes whether daily realized volatility, which is the sum of squared intraday returns over a day, is useful for option pricing. Different realized volatilities are calculated with or without taking account of microstructure noise and with or without using overnight and lunch-time returns. ARFIMA, ARFIMAX, HAR, HARX models are employed to specify the dynamics of realized volatility. ARFIMA and HAR models can capture the long-memory property and ARFIMAX and HARX models can also capture the asymmetry in volatility depending on the sign of previous day's return. Option prices are derived under the assumption of risk-neutrality. For comparison, GARCH, EGARCH and FIEGARCH models are estimated using daily returns, where option prices are derived by assuming the risk-neutrality and by using the Duan (1995) method in which the assumption of risk-neutrality is relaxed. Main results using the Nikkei 225 stock index and its put options prices are: (1) ARFIMAX model with daily realized volatility performs best, (2) the Hansen and Lunde (2005a) adjustment without using overnight and lunch-time returns can improve the performance, (3) if the Hansen and Lunde (2005a), which also plays a role to remove the bias caused by the microstructure noise by setting the sample mean of realized volatility equal to the sample variance of daily returns, is used, the other methods for taking account of microstructure noise do not necessarily improve the performance and (4) the Duan (1995) method does not improve the performance compared with assuming the risk neutrality."--1st preliminary page. | |
| 650 | 0 | |a Options (Finance) |x Prices |z Japan |x Mathematical models. | |
| 700 | 1 | |a Watabe, Toshiaki, |d 1963- |0 http://id.loc.gov/authorities/names/nr99019030 |1 http://isni.org/isni/0000000082832628. | |
| 710 | 2 | |a Nihon Ginkō. |b Kin'yū Kenkyūjo. |0 http://id.loc.gov/authorities/names/n85096407 |1 http://isni.org/isni/0000000417569762. | |
| 830 | 0 | |a IMES discussion paper series ; |v no. 2011-E-18. |0 http://id.loc.gov/authorities/names/no97025687. | |
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