Search results

The study examines not only the methods for eliminating stale or abnormal prices but also strategies for enhancing liquidity in the KOSPI 200 index options market, for compensating the defects of V-KOSPI 200.

First, introducing market making scheme in the KOSPI 200 options market can be the direct solution to prevent temporary fluctuations and spikes of the index arising from abnormal orders and to alleviate unnatural low variability (level) of the index through decreasing the use of stale market prices (model prices).

Second, if weekly options underlying KOSPI 200 index are available for trading and investor interest in the weeklys are surged, Korea Exchange can enhance V-KOSPI 200 to include series of KOSPI 200 weekly options. The inclusion for at least 5~6 weekly options available for trading allow V-KOSPI 200 to be calculated with KOSPI 200 index option series that most precisely match the 30-day target time-frame for expected volatility that the Index is intended to represent.

Along with these strategies for enhancing liquidity in the KOSPI 200 index options market, the study suggests the methodology which can prevents temporary fluctuations and spikes of the index by substituting stale or abnormal prices for normal prices.

This article empirically tests the time-correlation of implied information reflecting the return dynamics of KOSPI 200 markets in the view of the decision making and market efficiency. Because option prices are not perfectly correlated with each other and with the underlying asset, the information contents of the option are different from those of the underlying market price. And, under the non-complete of the market and the limited arbitrage, the information implied in option (underlying) market price may be more useful in the option (underlying) market than in the underlying (option) market.

The estimation results show that the time-correlation of incremental information are existed in performance of out-of-sample pricing and delta hedging conditioned on MR, a result which is not suggestive of the informational efficiency of the KOSPI 200 market. But, the decision marking using the systematic pattern may not be useful due to the option pricing models that allows moments of higher order than two reflecting the source of which the risk-neutrality assumption is strongly rejected by the data.

This paper empirically investigates the usefulness of extreme events implied into the non-complete option market in which return generating process of underlying asset is different from that of options. The empirical results find that the information about the extreme events implied in the option market prices has more accurate forecasting power within the tail than near the first moment of realized distribution. So, we expect that the implied information of extreme jump can help to improve the back-testing performance of value at risk where it is primarily important to take account of low-probability events. Regardless of whether calibration function for density transformation is the beta-distribution or non-parametric kernel density, extreme jump provides consistently satisfactory predictions.

This paper examines the martingale restriction for the KOSPI 200 index options market. And in cases of the rejections, we investigate the relative market efficiency between stock index and stock index options market, using approximate entropy (ApEn) method proposed by Pincus (1994), which quantifies a complexity, irregularity and unpredictability in time series. The empirical results of this study clearly reject the martingale restriction and regression analyses indicate that the historical returns of underlying index can explain about 25% of the price differences between option-implied and market index prices but the total trading volume can explain only a small portion of the price differences. These results have cast doubt on the informational efficiency of this market. Comparing the relative market efficiency based on ApEn have showed that the complexity or irregularity of KOSPI 200 index is larger than the index options during the entire sample period. But, Examining separately ApEn of the magnitude and the sign time series which compose log-returns document that stock index options market reflect more efficiently the information about the direction of price changes than the stock index market in 2014 and the efficiency of the index options market about the directional information may be affected by directional traders who prefer certain strategies designed by exploiting past stock market movements.

This article empirically analyzes some properties by all one-dimensional diffusion option models by using the martingale restriction test and examines the systematic risk factors Implied In return dynamics of KOSPI 200 index options. We find that the martingale restriction under one-dimensional diffusion option model is strongly rejected by the data because of the negative volatility risk premium. Therefore options are not redundant securities, nor monotonically increasing (decreasing) in the underlying asset price and also option prices are not perfectly correlated with each other and with the underlying asset. And under the non-complete of the market. the informational led-lag relationship between the stock indices and the stock index options exist.