The Nonlinear Relationship between the Spot Foreign Exchange Rate and the Implied Volatility
| Autor: | Yan-Chun Chen, 陳彥錞 |
|---|---|
| Rok vydání: | 2006 |
| Druh dokumentu: | 學位論文 ; thesis |
| Popis: | 94 The measure and estimate of volatility are the key topics in pricing derivatives or value at risk. According to the view of the trend in volatility, traders can make the option portfolio value only depend on future volatility move by hedging process. Hence the research of the relationship between the price of underlying asset and the implied volatility can help traders to manage option portfolio. The empirical literatures in past about the relationship most focused on equity option. This paper discusses for the EUR/USD spot FX rate, historical volatility the ATM implied volatility, 25D risk reversal, and 25D butterfly in the FX option market employing a non-linear version based on asymmetric threshold autoregressive model and threshold error correction model. The results suggest the significant asymmetric cointegration in spot and ATM implied volatility, spot and 25D risk reversal, spot and 25D butterfly, ATM implied volatility and GARCH volatility, ATM implied volatility and simple moving average volatility. Furthermore, the results from Granger-Causality tests based on corresponding threshold error-correction model clearly point out the asymmetric causality in the short run and asymmetric price transmissions between these pairs in the long run. When the spot moved positively, considering short-term causality, trader can short ATM implied volatility and long 25D risk reversal to ride the volatility smile. Hence the curve will shift and correspond to the result of Hull and White (1987). |
| Databáze: | Networked Digital Library of Theses & Dissertations |
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