Doctor of Philosophy (PhD)


Finance (Business Administration)

Document Type



In this work, I develop a new volatility measure; the volatility implied by price changes in option contracts and their underlyings. I refer to this as implied price change volatility. First, I examine the time series behavior of implied price change volatility and investigate possible moneyness and maturity effects. I compare these characteristics to those of the usual implied volatility measure and the historical volatility of the S&P 500 index. Then, I investigate the performance of the implied price change volatility in a regression setup and in hedging applications. I compare the performance of hedges using daily updated implied price change volatility and implied volatility and their averages. Data used in this study are tick-data on pit traded S&P 500 futures options and their underlying from 1998 to 2006. I find that implied price change volatility has similar time series behavior and moneyness and maturity effects as implied volatility. However, the price change volatility is more disperse than implied volatility. Hedges using daily updated volatilities consistently outperform hedges based on average volatilities. In addition, the delta hedges based on directly estimated implied price change volatility outperform even the delta-gamma and delta-vega hedges for call options. This finding suggests that using volatilities estimated from price changes rather than price levels may result in more effective hedges for call options.



Document Availability at the Time of Submission

Release the entire work immediately for access worldwide.

Committee Chair

Wei Li