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dc.contributor.authorAndreou, Panayiotis-
dc.contributor.authorCharalambous, Chris-
dc.contributor.authorMartzoukos, Spiros H.-
dc.contributor.otherAνδρέου, Παναγιώτης-
dc.identifier.citationReview of Quantitative Finance and Accounting, 2014, Volume 42, Issue 3, Pages 373-397en_US
dc.description.abstractThis study examines several alternative symmetric and asymmetric model specifications of regression-based deterministic volatility models to identify the one that best characterizes the implied volatility functions of S&P 500 Index options in the period 1996-2009. We find that estimating the models with nonlinear least squares, instead of ordinary least squares, always results in lower pricing errors in both in- and out-of-sample comparisons. In-sample, asymmetric models of the moneyness ratio estimated separately on calls and puts provide the overall best performance. However, separating calls from puts violates the put-call-parity and leads to severe model mis-specification problems. Out-of-sample, symmetric models that use the logarithmic transformation of the strike price are the overall best ones. The lowest out-of-sample pricing errors are observed when implied volatility models are estimated consistently to the put-call-parity using the joint data set of out-of-the-money options. The out-of-sample pricing performance of the overall best model is shown to be resilient to extreme market conditions and compares quite favorably with continuous-time option pricing models that admit stochastic volatility and random jump risk factors.en_US
dc.publisherSpringer New Yorken_US
dc.rights© 2013 Springer Science+Business Media New York.en_US
dc.subjectDeterministic volatility functionsen_US
dc.subjectImplied volatility forecastingen_US
dc.subjectModel selectionen_US
dc.subjectOption pricingen_US
dc.subjectStochastic volatilityen_US
dc.titleAssessing the performance of symmetric and asymmetric implied volatility functionsen_US
dc.collaborationCyprus University of Technologyen_US
dc.collaborationDurham Universityen_US
dc.collaborationUniversity of Cyprusen_US
dc.subject.categoryEconomics and Businessen_US
dc.journalsSubscription Journalen_US
dc.countryUnited Kingdomen_US
dc.subject.fieldSocial Sciencesen_US
dc.publicationPeer Revieweden_US
item.fulltextNo Fulltext-
item.grantfulltextnone- of Commerce, Finance and Shipping- of Management and Economics- of Management and Economics-
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