An empirical comparison of implied tree models for KOSPI 200 index options
- 作者：In Joon Kim and Gun Youb Park
- 关键词：Implied risk-neutral probabilities ; Implied binomial tree ; Generalized binomial tree ; Implied volatility tree ; Hedge performance
- 刊名：International Review of Economics and Finance
- 出版年：2006
- 期刊代码：23_10590560
- 类别：eco
- 出版时间：2006
- 卷：15
- 期：1
- 页码：52-71
- 文件大小：187 K
摘要
This paper compares implied tree models for KOSPI 200 index options with regards to the pricing and hedging performance. With Cox, Ross, and Rubinstein's [Cox, J., Ross, S., & Rubinsteinm, M., 1979. Option pricing: A simplified approach. Journal of Financial Economics, 7, 229–263] standard binomial tree (SBT) model as a benchmark, we analyzed three models: Rubinstein's [Rubinstein, M., 1994. Implied binomial trees. Journal of Finance, 49, 771–818] implied binomial tree (IBT), Jackwerth's [Jackwerth, J. C., 1997. Generalized binomial trees. Journal of Derivatives, 5, 7–17] generalized binomial tree (GBT), and Derman and Kani's [Derman, E., & Kani, I., 1994. Riding on a smile. Risk, 7, 32–39] implied volatility tree (IVT) models. The SBT model, the simplest, shows the best performance. Moreover, the delta-hedged strategy in all of the binomial models generates, on average, negative gains. This finding, consistent with the findings by Bakshi and Kapadia [Bakshi, G., & Kapadia, N., 2003. Delta-hedged gains and the negative market volatility risk premium. Review of Financial Studies, 16, 527–566], indicates the existence of a negative market volatility risk premium.