| Budget Amount *help |
¥3,300,000 (Direct Cost: ¥3,300,000)
Fiscal Year 2004: ¥1,000,000 (Direct Cost: ¥1,000,000)
Fiscal Year 2003: ¥2,300,000 (Direct Cost: ¥2,300,000)
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| Research Abstract |
In analyzing option prices, it is very important to use data with exactly the same time-stamps. Daily data, of closing prices with unknown time when the closing transactions were done, don't guarantee such simultaneousness. This research utilizes tick-by-tick data for Nikkei 225 put and call options from January 2000 to December 2000. They are records of price, volume, bid, ask, and time of each transactions, that make us to keep the simultaneousness. We investigate volatility smile, which is a nonlinear relationship between moneyness (= a ratio of an exercise price to a price of the underlying asset of the option) and the implied volatility (IV), those documented in previous studies using daily data.
We found that (1)IV's from daily data don't necessarily coincide with ones from tick data, (2)IV's are affected whether the transaction occurred at the ask side or the bid side, (3)After adjusting these, we still observe volatility smile, and (4)a large IV which is far off from the fitted smile curve occurs with deep-in-the-money options of a small volume, whose price sensitivity to the volatility of the underlying securities is small.
These findings are consistent with the following theoretical predictions ; (a)effects of a change in the volatility on the option price are greatest for near-the-money (NTM) options, and trading volumes are highest for NTM options, (b)NTM options need relatively large adjustments when the volatility changes, and therefore prices for NTM options should be compensated for transactions costs that the NTM options would incur, (c)option trading is motivated by differences of opinions among traders, on the value of volatilities, which can not be observed directly but must be inferred from option prices.
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