Advanced Search
MyIDEAS: Login

Which Option Pricing Model is the Best? High Frequency Data for Nikkei225 Index Options

Contents:

Author Info

  • Ryszard Kokoszczyński

    ()
    (Faculty of Economic Sciences, University of Warsaw, Economic Institute, National Bank of Poland)

  • Paweł Sakowski

    ()
    (Faculty of Economic Sciences, University of Warsaw)

  • Robert Ślepaczuk

    ()
    (Faculty of Economic Sciences, University of Warsaw)

Abstract

Option pricing models are the main subject of many research papers prepared both in academia and financial industry. Using high-frequency data for Nikkei225 index options, we check the properties of option pricing models with different assumptions concerning the volatility process (historical, realized, implied, stochastic or based on GARCH model). In order to relax the continuous dividend payout assumption, we use the Black model for pricing options on futures, instead of the Black-Scholes-Merton model. The results are presented separately for 5 classes of moneyness ratio and 5 classes of time to maturity in order to show some patterns in option pricing and to check the robustness of our results. The Black model with implied volatility (BIV) comes out as the best one. Highest average pricing errors we obtain for the Black model with realized volatility (BRV). As a result, we do not see any additional gain from using more complex and time-consuming models (SV and GARCH models. Additionally, we describe liquidity of the Nikkei225 option pricing market and try to compare our results with a detailed study for the emerging market of WIG20 index options (Kokoszczyński et al. 2010b).

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.wne.uw.edu.pl/inf/wyd/WP/WNE_WP39.pdf
File Function: First version, 2010
Download Restriction: no

Bibliographic Info

Paper provided by Faculty of Economic Sciences, University of Warsaw in its series Working Papers with number 2010-16.

as in new window
Length: 32 pages
Date of creation: 2010
Date of revision:
Handle: RePEc:war:wpaper:2010-16

Contact details of provider:
Postal: ul. Dluga 44/50, 00-241 Warszawa
Phone: (+48 22) 55 49 144
Fax: (+48 22) 831 28 46
Email:
Web page: http://www.wne.uw.edu.pl/
More information through EDIRC

Related research

Keywords: option pricing models; financial market volatility; high-frequency financial data; midquotes data; transactional data; realized volatility; implied volatility; stochastic volatility; microstructure bias; emerging markets;

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Corrado, Charles J & Su, Tie, 1996. "Skewness and Kurtosis in S&P 500 Index Returns Implied by Option Prices," Journal of Financial Research, Southern Finance Association & Southwestern Finance Association, vol. 19(2), pages 175-92, Summer.
  2. G.C. Lim & G.M. Martin & V.L. Martin, 2002. "Parametric Pricing of Higher Order Moments in S&P500 Options," Monash Econometrics and Business Statistics Working Papers 1/02, Monash University, Department of Econometrics and Business Statistics.
Full references (including those not matched with items on IDEAS)

Citations

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:war:wpaper:2010-16. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Marcin Bąba).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.