What drives the implied volatility of index options?

Implied Volatility of Leveraged ETF Options

This paper studies the problem of understanding implied volatilities from options written on leveraged exchanged-traded funds (LETFs), with an emphasis on the relations between options on LETFs with different leverage ratios. We first examine from empirical data the implied volatility surfaces for LETFs based on the S&P 500 index, and we introduce the concept of moneyness scaling to enhance the...

Estimation of Options Implied Volatility Curve

• This document describes how I used mathematical methods for the estimation of implied volatility curve, a crucial engineering problem raised in our High Frequency Trading (HFT) strategy. I apologize for using many of jargons and unformatted figures. This is because the materials were not prepared for an academic purpose, but just for internal usage. • All data used in this document are about ...

Understanding the Implied Volatility Surface for Options on a Diversified Index

This paper describes a two-factor model for a diversified index that attempts to explain both the leverage effect and the implied volatility skews that are characteristic of index options. Our formulation is based on an analysis of the growth optimal portfolio and a corresponding random market activity time where the discounted growth optimal portfolio is expressed as a time transformed squared...

Modelling the Implied Volatility Surface: Does Market Efficiency Matter? An Application to MIB30 Index Options

We analyze the volatility surface vs. moneyness and time to expiration implied by MIBO options written on the MIB30, the most important Italian stock index. We specify and fit a number of models of the implied volatility surface and find that it has a rich and interesting structure that strongly departs from a constant volatility, Black-Scholes benchmark. This result is robust to alternative ec...

Equity correlations implied by index options