Determinants Of Implied Volatility Movements In Individual Equity Options

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Title: Determinants Of Implied Volatility Movements In Individual Equity Options
Author: Angelo, Christopher G.
Abstract: In this study , I introduce a parsimonious model that explains implied volatility time series for individual stock options . The current state of risk management for individual equity options still seems to lack the presence of pertinent exogenous variables . This study suggests a few easily observable variables that can be used to explain the changes in implied volatilities of stock options . These variables can be used in the risk models in order to more accurately manage option positions for individual stocks . The first chapter provides a motivation for the VIX as the primary explanatory variable for changes in implied volatility . It also examines the role of fundamental variables . The second chapter shows that the VIX as a good explanatory variable for explaining changes in implied volatility . It also examines the return of the underlying asset as an explanatory variable . Various techniques are used to determine the efficacy of the variables such as Fama -Macbeth cross -sectional regressions , Principal Component analysis , and individual regressions for each company in the sample . The final chapter examines risk premia in straddle returns and provides a practical application of volatility hedging .
URI: http : / /hdl .handle .net /10106 /5122
Date: 2010-11-01

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Determinants Of Implied Volatility Movements In Individual Equity Options. Available electronically from http : / /hdl .handle .net /10106 /5122 .

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