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A Simple Expected Volatility (SEV) Index: Application to SET50 Index Options

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dc.contributor.authorWiphatthanananthakul, Chatayan
dc.contributor.authorMcAleer, Michael
dc.date.accessioned2023-06-20T09:17:49Z
dc.date.available2023-06-20T09:17:49Z
dc.date.issued2009-03-24
dc.descriptionThis paper was written while the first author was visiting the Econometric Institute, Erasmus School of Economics, Erasmus University Rotterdam, in autumn 2008. The first author wishes to acknowledge the financial support of the Stock Exchange of Thailand, while the second author wishes to thank the Australian Research Council for financial support, and the Erasmus School of Economics for their gracious hospitality and excellent working environment.
dc.description.abstractIn 2003, the Chicago Board Options Exchange (CBOE) made two key enhancements to the volatility index (VIX) methodology based on S&P options. The new VIX methodology seems to be based on a complicated formula to calculate expected volatility. In this paper, with the use of Thailand’s SET50 Index Options data, we modify the apparently complicated VIX formula to a simple relationship, which has a higher negative correlation between the VIX for Thailand (TVIX) and SET50 Index Options. We show that TVIX provides more accurate forecasts of option prices than the simple expected volatility (SEV) index, but the SEV index outperforms TVIX in forecasting expected volatility. Therefore, the SEV index would seem to be a superior tool as a hedging diversification tool because of the high negative correlation with the volatility index.
dc.description.facultyFac. de Ciencias Económicas y Empresariales
dc.description.facultyInstituto Complutense de Análisis Económico (ICAE)
dc.description.refereedTRUE
dc.description.sponsorshipAustralian Research Council
dc.description.statusunpub
dc.eprint.idhttps://eprints.ucm.es/id/eprint/8698
dc.identifier.relatedurlhttps://www.ucm.es/icae
dc.identifier.urihttps://hdl.handle.net/20.500.14352/49263
dc.issue.number16
dc.language.isoeng
dc.page.total39
dc.relation.ispartofseriesDocumentos de trabajo del Instituto Complutense de Análisis Económico (ICAE)
dc.rights.accessRightsopen access
dc.subject.keywordFinancial markets
dc.subject.keywordModel selection
dc.subject.keywordNew products
dc.subject.keywordPrice forecasting
dc.subject.keywordTime series
dc.subject.keywordVolatility forecasting
dc.subject.ucmFinanzas
dc.titleA Simple Expected Volatility (SEV) Index: Application to SET50 Index Options
dc.typetechnical report
dc.volume.number2009
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