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Determinants of the implied volatility function on the Italian Stock Market

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  • Alessandro Beber

Abstract

This paper describes the implied volatility function computed from options on the Italian stock market index between 1995 and 1998 and tries to find out potential explanatory variables. We find that the typical smirk observed for S&P500 stock index characterizes also Mib30 stock index. When potential determinants are investigated by a linear Granger Causality test, the important role played by option's time to expiration, transacted volumes and historical volatility is detected. A possible proxy of portfolio insurance activity does poorly in explaining the observed pattern. Further analysis shows that the dynamic interrelation between the implied volatility function and some determinants could be, to a certain extent, non-linear.

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Bibliographic Info

Paper provided by Department of Computer and Management Sciences, University of Trento, Italy in its series Alea Tech Reports with number 010.

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Length: 40 pages
Date of creation: Mar 2001
Date of revision: 14 Jun 2008
Handle: RePEc:trt:aleatr:010

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Cited by:
  1. Flavio Bazzana & Francesca Debortoli, 2002. "Il rischio sistemico in finanza: una rassegna dei recenti contributi in letteratura," Alea Tech Reports 017, Department of Computer and Management Sciences, University of Trento, Italy, revised 14 Jun 2008.
  2. Enrico Zaninotto & Alessandro Rossi & Loris Gaio, 1999. "Stochastic Learning in Co-ordination Games: a Simulation Approach," ROCK Working Papers 001, Department of Computer and Management Sciences, University of Trento, Italy, revised 21 May 1999.
  3. Flavio Bazzana, 2001. "I modelli interni per la valutazione del rischio di mercato secondo l'approccio del Value at Risk," Alea Tech Reports 011, Department of Computer and Management Sciences, University of Trento, Italy, revised 14 Jun 2008.
  4. Marco Filagrana, 2002. "Il model risk nella gestione dei rischi di mercato," Alea Tech Reports 015, Department of Computer and Management Sciences, University of Trento, Italy, revised 14 Jun 2008.
  5. Luca Erzegovesi, 2002. "VaR and Liquidity Risk.Impact on Market Behaviour and Measurement Issues," Alea Tech Reports 014, Department of Computer and Management Sciences, University of Trento, Italy, revised 14 Jun 2008.
  6. Marco Bee, 2001. "Mixture models for VaR and stress testing," Alea Tech Reports 012, Department of Computer and Management Sciences, University of Trento, Italy, revised 14 Jun 2008.

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