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Exploring Return Dynamics via Corridor Implied Volatility

delete2015-06-01
delete61
PRE
AI
T
Torben G. Andersen
O
Oleg Bondarenko *
M
María T. González-Pérez
DOI：10.1093/rfs/hhv033delete
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Abstract

Abstract

En 中文
Some fundamental questions regarding equity-index return dynamics are difficult to address due to the latent character of spot volatility. We exploit tick-by-tick option quotes to compute a novel Corridor Volatility index which may serve as an observable proxy for short-term volatility. Exploiting this index, we find that equity-index volatility jumps are common, symmetrically distributed, and cojump with the underlying returns. Moreover, the return-volatility asymmetry is more pronounced than is generally recognized and is in force for both diffusive and jump innovations in volatility. Finally, the index performs admirably during turbulent market conditions, constituting a useful real-time gauge of market stress.
Keywords:
STOCK RETURNS
LEVERAGE
PRICE
MODEL
RISK
IMPACT
JUMPS
NEWS
FIRM
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Journal

Review of Financial Studies cover
Review of Financial Studies
IF:
5.4
Papers:
2.8K
Citations:
3.0W

Organization

U
University of Illinois Chicago
Scholars:
1.7W
Papers: 1.4W
Citations: 3.0W
University of Illinois System cover
University of Illinois System
Scholars:
6.8W
Papers: 6.2W
Citations: 644
N
Northwestern University
Scholars:
6.1W
Papers: 5.3W
Citations: 3.9K
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