title : Effects of Rollover Strategies and Information Stability on the Performance Measures in Option Market
One of the most widely used option valuation models among practitioners is the ad hoc Black-Scholes (AHBS) model in which implied volatilities can be ex-pressed as a function of moneyness, the strike price, or forward moneyness. This paper employs two rollover strategies (nearest-to-next strategy and next-to-next) from then on the day of rollover from the nearest option contract to next option contract to investigate the information content of the rollover mechanism. When we control for the rollover effect on the day of rollover by using the next-to-next strategy, there is no overfitting problem in the AHBS models. Furthermore, the next-to-next strategy performs much better than the nearest-to-next for all the AHBS models considered in the present study. Also this paper uses the mean square error for out-of-sample pricing and price changes to determine how the options investors are in uenced by moneyness. The results indicate that under-pricing (or overpricing) by the AHBS model for the near-the-money category is more likely to be maintained for the next several trading days but that such a phenomenon is reversed for the deep out-of-the-money category. Finally, the ratio of the number of option contracts to differences in strike prices between
the current day and the previous day(s), defined as the information stability indicator, is a good categorizing factor for options, such as moneyness.
Keywords: Option Pricing; Volatility Smiles; Black and Scholes; Traders' Rules; Rollover Effect; Information Stability
학회소식
학회소식
[2010년 제 4차] Effects of Rollover Strategies and Information Stab
작성자 : 관리자
조회수 : 806
게시일 :
2010-12-09