Implied volatility with transaction costs and the market efficiency of the KOSPI 200 option market = 거래비용하의 내재변동성과 KOSPI 200 옵션시장의 효율성에 관한 연구

The “smile” in Black-Scholes implied volatilities is observed in KOSPI 200 index option market. And the Black-Scholes implied volatility is not an unbiased estimator of the future realized volatility over the remaining life of the option. These anomalies cannot be explained in the pure Black-Scholes economy. The possible explanations are: 1) The underlying asset’s return process is not a geometric Brownian motion process, 2) transaction costs and the measurement errors in variable exist, and/or 3) the market is inefficient. This paper examines the possibility that the measurement errors in variables and the transaction costs cause the anomalies. Empirical results show that the measurement errors and transaction costs may explain the volatility “smile”, but cannot explain the bias of implied volatilities, especially for the ATM options, in forecasting the future realized volatility. We also examine whether the trading strategy of selling the overvalued and buying the undervalued by Black-Scholes formula, brings profits to investors. This strategy with delta-neutral hedging generates substantial pre-transaction cost trading profits. This strategy still remains profitable even after considering the transaction costs. This trading profits support the market inefficiency. Some other evidence showing the possibility of the market inefficiency is suggested in the paper.
Advisors
Lee, Kyu-Sungresearcher이규성researcher
Publisher
한국과학기술원
Issue Date
2004
Identifier
238574/325007  / 020023669
Language
eng
Description

학위논문(석사) - 한국과학기술원 : 경영공학전공, 2004.2, [ iv, 47 p. ]

Keywords

TRANSACTION COSTS; IMPLIED VOLATILITY; MARKET EFFICIENCY; 시장효율성; 거래비용; 내재변동성

URI
http://hdl.handle.net/10203/52472
Link
http://library.kaist.ac.kr/search/detail/view.do?bibCtrlNo=238574&flag=t
Appears in Collection
KGSM-Theses_Master(석사논문)
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