This paper examines whether the options volatility spread, risk neutral skew and kurtosis have information for predicting the distribution of the underlying asset. More specifically, we focus on the third and fourth moments of distribution, called skew and kurtosis, which contain important information for forecasting potential crash, spike upward and the fluctuations of stock index. The sample period covers from January 2002 to December 2006 with the closing price returns of KOSPI 200 Index and the KOSPI 200 options. The options volatility skews are estimated using method suggested by Cremers and Weinbaum(2010) and Xing, Zhang and Zhao(2010). And when estimating risk neutral skew and kurtosis of options, we use non-parametric method of Bakshi, Kapadia, and Madan(2003). We estimate and kurtosis of the underlying assets using Chen, Hong and Stein (2001) model and using stock returns during the past 1 month we calculate the historical 4th moments, called Physical kurtosis. Using statistical methodology such as VAR(vector autoregressive model), Granger causality test, impulse response and variance decomposition model, we investigate the response of higher moments of underlying asset to the change of options volatility skew and the implied risk neutral skew and kurtosis. Followings are the major findings and implications drawn from the empirical analysis of the Korean options market. First of all, options volatility skew has predictive information in forecasting the realized skew of the KOSPI200 index return. For the BKM skew and kurtosis, these implied risk neutral skew and kurtosis also provide some contents for predicting the third and fourth moments of KOSPI 200 index return.
Key words: Volatility skew, Risk-neutral distribution, VAR model, information flow, Lead-lag relationship
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[2014년 제 1차] On the Usefulness of Options Volatility Spread, Ris
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2014-02-24