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An Intraweek Seasonality in the Implied Volatilities of Individual and Index Options
Author(s) -
Morse Joel N.
Publication year - 1991
Publication title -
financial review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.621
H-Index - 47
eISSN - 1540-6288
pISSN - 0732-8516
DOI - 10.1111/j.1540-6288.1991.tb00384.x
Subject(s) - economics , implied volatility , econometrics , futures contract , volatility (finance) , financial economics , stock market index , futures market , index (typography) , volatility smile , derivatives market , stock options , actuarial science , stock market , finance , computer science , geography , context (archaeology) , archaeology , world wide web
This paper studies intraweek seasonalities in the implied volatilities of options on stock market indices. Oneway analysis of variance isolates the daily behavior of implied volatilities. The differential between call implied volatility and put implied volatility tends to drop on Friday and rise on Monday. Relying on a synthetic futures contract created from options, an explanatory model is proposed. The model complements previous research on the difference between the intraweek behavior of stock market indices and that of derivative instruments based on the indices.