Resource title

A joint analysis of the KOSPI 200 option and ODAX option markets dynamics

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Resource description

As a function of strike and time to maturity the implied volatility estimation is a challenging task in financial econometrics. Dynamic Semiparametric Factor Models (DSFM) are a model class that allows for the estimation of the implied volatility surface (IVS) in a dynamic context, employing semiparametric factor functions and time-varying loadings. Because financial asset volatilities move over time, across assets and over markets, this paper analyses volatility interaction between German and Korean stock markets. As proxy for the volatility, factor loadings series derived from a DSFM application on option prices are employed. We examine volatility transmission between the markets under the vector autoregressive (VAR) model framework. Our results show that a shock in the volatility of one market may not translate directly into greater uncertainty in another market and it is unlikely that portfolio investors can benefit from diversification among these markets due to cointegration.

Resource author

Ji Cao, Wolfgang Karl Härdle, Julius Mungo

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Resource publish date

Resource language

eng

Resource content type

text/html

Resource resource URL

http://hdl.handle.net/10419/25335

Resource license

Adapt according to the presented license agreement and reference the original author.