Skip Navigation



RFS Advance Access published online on May 25, 2005
Review of Financial Studies, doi:10.1093/rfs/hhi027
This Article
Right arrow Advance Access manuscript (PDF)
Right arrow All Versions of this Article:
18/4/1305    most recent
hhi027v1
Right arrow Alert me when this article is cited
Right arrow Alert me if a correction is posted
Services
Right arrow Email this article to a friend
Right arrow Similar articles in this journal
Right arrow Alert me to new issues of the journal
Right arrow Add to My Personal Archive
Right arrow Download to citation manager
Right arrowRequest Permissions
Google Scholar
Right arrow Articles by Jiang, G. J.
Right arrow Articles by Tian, Y. S.
Right arrow Search for Related Content
Social Bookmarking
Add to CiteULike   Add to Connotea   Add to Del.icio.us  
What's this?

© The Author 2005. Published by Oxford University Press. All rights reserved. For Permissions, please email: journals.permissions@oupjournals.org
Received June 26, 2004

Article

The Model-Free Implied Volatility and Its Information Content1

George J. Jiang 1* and Yisong S. Tian 2*
1 Finance Department, Eller College of Business, University of Arizona, Tucson, Arizona 85721-0108
2 Finance Area, Schulich School of Business, York University, 4700 Keele Street, Toronto, ON M3J 1P3

* To whom correspondence should be addressed.
George J. Jiang, E-mail: gjiang{at}eller.arizona.edu
Yisong S. Tian, E-mail: ytian{at}schulich.yorku.ca


  Abstract

Britten-Jones and Neuberger (2000) derive a model-free implied volatility under the diffusion assumption. In this paper, we extend their model-free implied volatility to asset price processes with jumps and develop a simple method for implementing it using observed option prices. In addition, we perform a direct test of the informational efficiency of the option market using the model-free implied volatility. Our results from the S&P 500 index options suggest that the model-free implied volatility subsumes all information contained in the Black-Scholes implied volatility and past realized volatility and is a more efficient forecast for future realized volatility.

1We would like to thank Yacine Aït-Sahalia (the editor), an anonymous referee, Stewart Hodges, Chris Lamoureux, Nathaniel O’Connor, Wulin Suo, Shu Yan, Hao Zhou, and seminar participants at the Federal Reserve Board, the University of Toronto, and the University of Warwick for helpful comments and suggestions. The financial support of the Social Sciences and Humanity Research Council of Canada is gratefully acknowledged.
Add to CiteULike CiteULike   Add to Connotea Connotea   Add to Del.icio.us Del.icio.us    What's this?


This article has been cited by other articles:


Home page
 REV FINANC STUDHome page
P. Carr and L. Wu
Variance Risk Premiums
Rev. Financ. Stud., April 10, 2008; (2008) hhn038v1.
[Abstract] [Full Text] [PDF]


Disclaimer:
Please note that abstracts for content published before 1996 were created through digital scanning and may therefore not exactly replicate the text of the original print issues. All efforts have been made to ensure accuracy, but the Publisher will not be held responsible for any remaining inaccuracies. If you require any further clarification, please contact our Customer Services Department.