Liquidity considerations in estimating implied volatility

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dc.contributor.author Grover, Rohini
dc.contributor.author Thomas, Susan
dc.date.accessioned 2012-06-04T06:26:43Z
dc.date.available 2012-06-04T06:26:43Z
dc.date.issued 2012-06-04
dc.identifier.uri http://hdl.handle.net/2275/135
dc.description.abstract Option markets have significant variation in liquidity across different option series. Illiquidity reduces the informativeness of the price. Price information for illiquid options is more noisy, and thus the implied volatilities based on these prices are more noisy. In this paper, we propose a scheme to estimate implied volatility which reduces the importance attached to illiquid options. We find that this liquidity weighted scheme outperforms conventional schemes such as the traditional vxo, or vega weights, and volatility elasticity weights. en_US
dc.language.iso en en_US
dc.relation.ispartofseries WP;WP-2011-006
dc.subject Liquidity en_US
dc.subject Implied volatility en_US
dc.subject Volatility index en_US
dc.subject Indian index options market en_US
dc.title Liquidity considerations in estimating implied volatility en_US
dc.type Working Paper en_US

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