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| Author: | Poon, S. Pope, P. |
| Title: | Trading volatility spreads: a test of index option market efficiency |
| Journal: | European Financial Management
2000 : JUN, VOL. 6:2, p. 235-260 |
| Index terms: | MARKET EFFICIENCY OPTIONS VOLATILITY |
| Language: | eng |
| Abstract: | If returns on two assets share common volatility components, the prices of options on the assets should be interdependent and the implied volatility spread should mean revert. The authors first demonstrate, using the canonical correlation method, that there is a common component in the volatilities of the returns on S&P 100 and S&P 500 indices. They then exploit this commonality by trading on the volatility spread between tick-by-tick OEX and SPX call options listed on the CBOE. |
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