The information content of the S&P 500 index and VIX options on the dynamics of the S&P 500 index (original) (raw)

The Informational Content of High-Frequency Option Prices

Management Science, 2021

We propose the option realized variance as an observable variable to summarize the information from high-frequency option data. This variable aggregates intraday option returns from midquote prices to compute an option’s total variability for a given day, providing additional information about the jump activity in the data generating process. Using the S&P 500 index time series and options data, this paper documents the performance of this realized measure in predicting the index realized variance as well as the equity and variance risk premiums. We estimate an option pricing model and analyze its parameter estimates. Our results show that excluding high-frequency option information produces significant differences in variance jump parameters, estimated risk premiums, and option pricing errors. This paper was accepted by Tyler Shumway, finance.

The economic value of trading with realized volatility in the S&P 500 index options market

2006

Abstract: We investigate the information content in the S&P 500 index options market by using the" realized" volatility approach. We model realized volatility as an ARFIMA process to capture its long memory. We use encompassing regressions to analyze the forecast efficiency and information content of different volatility measures. We find that realized volatility has incremental value over implied volatility in forecasting future volatility. We evaluate the economic benefits of volatility timing by examining whether realized volatility ...