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New Zealand whole milk powder options
Author(s) -
Aschakulporn Pakorn,
Zhang Jin E.
Publication year - 2021
Publication title -
accounting and finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.645
H-Index - 49
eISSN - 1467-629X
pISSN - 0810-5391
DOI - 10.1111/acfi.12660
Subject(s) - volatility (finance) , economics , whole milk , implied volatility , volatility smile , zhàng , index (typography) , econometrics , financial economics , computer science , food science , chemistry , geography , china , archaeology , world wide web
Abstract This paper studies the New Zealand (NZ) dairy derivatives, specifically, whole milk powder (WMP) options, which have been the most actively traded options in NZ since their inception in November 2011. Using the methodology of Zhang and Xiang, the dynamics of the implied volatility smirk of WMP options is documented. Overall, the level, slope and curvature were found to be 0.2625, −0.0194 and 0.0756, respectively. Modifying the CBOE VIX methodology, the NZ Dairy Volatility Index is created; this exhibits a downward trend and is the second‐best predictor of WMP returns, after curvature, in the latest subsample – after 26 June 2017.