Hostname: page-component-78c5997874-4rdpn Total loading time: 0 Render date: 2024-11-15T06:44:15.278Z Has data issue: false hasContentIssue false
  • English
  • Français

Time Varying Volatilities and Calculation of the Weighted Implied Standard Deviation

Published online by Cambridge University Press:  06 April 2009

Bruce G. Resnick ,
Aamir M. Sheikh  and
Yo-Shin Song
Get access Rights & Permissions [Opens in a new window]

Abstract

Rogalski-Tinic have reported a monthly pattern in ex post stock return variances that differs between small and large market capitalization firms. Maloney-Rogalski find that option prices reflect these monthly patterns ex ante. This study extends Maloney-Rogalski's work by devising an expiration-specific weighted implied standard deviation (WISD). It is found that: i) the monthly patterns in one-month WISDs are basically similar to the monthly patterns in ex post variances detected by Rogalski-Tinic for both large and small size firms, and ii) use of expiration-specific WISDs, as opposed to standard composite WISDs, results in improved performance of option pricing models.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 28 , Issue 3 , September 1993 , pp. 417 - 430
Copyright
Copyright © School of Business Administration, University of Washington 1993

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Beckers, S. “Standard Deviation Implied in Option Prices as Predictors of Future Stock Price Variability.” Journal of Banking and Finance, 5 (09 1981), 363–382.Google Scholar
Black, F. “Fact and Fantasy in the Use of Options.” Financial Analysts Journal, 31 (07/08 1975), 36–41, 61–72.CrossRefGoogle Scholar
Black, F. “Studies of Stock Price Volatility Changes.” In Proceedings of the 1976 Meetings of the American Statistical Association, Business and Economic Statistical Section (1976), 177–181.Google Scholar
Black, F., and Scholes, M.. “The Valuation of Option Contracts and a Test of Market Efficiency.” Journal of Finance, 27 (05 1972), 399418.Google Scholar
Black, F. “The Pricing of Options and Corporate Liabilities.” Journal of Political Economy, 81 (05/06 1973), 637–659.CrossRefGoogle Scholar
Blattberg, R. C, and Gonedes, N. J.. “A Comparison of the Stable and Student Distributions as Stochastic Models for Stock Prices.” Journal of Business, 47 (04 1974), 244–280.Google Scholar
Bowerman, B., and O'Connell, R.. Linear Statistical Models. Boston: PWS-KENT Publishing Co. (1990).Google Scholar
Chiras, D., and Manaster, S.. “The Information Content of Option Prices and a Test of Market Efficiency.” Journal of Financial Economics, 6 (06/09 1978), 213–234.CrossRefGoogle Scholar
Christie, A. “The Stochastic Behavior of Common Stock Variances.” Journal of Financial Economics, 10 (12 1982), 407–432.CrossRefGoogle Scholar
Day, T, and Lewis, C.. “The Behavior of the Volatility Implicit in the Prices of Stock Index Options.” Journal of Financial Economics, 22 (10 1988), 103–122.Google Scholar
Elton, E., and Gruber, M.. “Marginal Stockholder Rates and the Clientele Effect.” Review of Economics and Statistics, 52 (02 1970), 68–74.CrossRefGoogle Scholar
Geske, R. “A Note on an Analytical Valuation Formula for Unprotected American Call Options on Stocks with Known Dividends.” Journal of Financial Economics, 1 (12 1979), 375–380.CrossRefGoogle Scholar
Harnett, D. L.Statistical Methods. Menlo Park, CA: Addison-Wesley Publishing Co. (1982).Google Scholar
Jarrow, R., and Rudd, A.. Option Pricing. Homewood, IL: Irwin (1983).Google Scholar
Kalay, A. “Ex-Dividend Day Behavior of Stock Prices: A Re-Examination of the Clientele Effect.” Journal of Finance, 37 (09 1982), 1059–1070.Google Scholar
Latane, H., and Rendleman, R. Jr, “Standard Deviations of Stock Price Ratios Implied in Option Prices.” Journal of Finance, 31 (05 1976), 369–382.CrossRefGoogle Scholar
Maloney, K., and Rogalski, R.. “Call-Option Pricing and the Turn of the Year.” Journal of Business, 62 (10 1989), 539–552.Google Scholar
Merton, R. “Theory of Rational Option Pricing.” The Bell Journal of Economics and Management Science, 4 (Spring 1973), 141–183.Google Scholar
Patell, J., and Wolfson, M.. “Anticipated Information Releases Reflected in Call Option Prices.” Journal of Accounting and Economics, 1 (08 1979), 117–140.Google Scholar
Rogalski, R., and Tinic, S.. “The January Size Effect: Anomaly or Risk Mismeasurement?” Financial Analysts Journal, 42 (11/12 1986), 63–70.CrossRefGoogle Scholar
Roll, R. “An Analytic Valuation Formula for Unprotected American Call Options on Stocks with Known Dividends.” Journal of Financial Economics, 5 (11 1977), 251–258.CrossRefGoogle Scholar
Rubinstein, M. “Non-Parametric Tests of Alternative Option Pricing Models Using All Reported Trades and Quotes on the 30 Most Active CBOE Option Classes from August 23, 1976 through August 31, 1978.” Journal of Finance, 40 (06 1985), 455–480.Google Scholar
Schmalensee, R., and Trippi, R.. “Common Stock Volatility Expectations Implied by Option Premia.“ Journal of Finance, 33 (03 1978), 129–147.CrossRefGoogle Scholar
Sterk, W. “Tests of Two Models for Valuing Call Options on Stocks with Dividends.” Journal of Finance, 37 (12 1982), 1229–1238.CrossRefGoogle Scholar
Sterk, W. “Comparative Performance of the Black-Scholes and Roll-Geske-Whaley Option Pricing Models.” Journal of Financial and Quantitative Analysis, 18 (09 1983), 345–354.Google Scholar
Whaley, R. “On the Valuation of American Call Options on Stocks with Known Dividends.” Journal of Financial Economics, 9 (06 1981), 207–212.CrossRefGoogle Scholar
Whaley, R. “Valuation of American Call Options on Dividend-Paying Stocks: Empirical Test.” Journal of Financial Economics, 10 (03 1982), 29–58.CrossRefGoogle Scholar
Winkler, R., and Hays, W.. Statistics. New York, NY: Holt, Rinehart, and Winston (1975).Google Scholar