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    Title: Do liquidity and sampling methods matter in constructing volatility indices? Empirical evidence from Taiwan
    Authors: 臧仕維;Tzang, Shyh-Weir
    Contributors: 財務金融學系
    Keywords: VIX;VXO;Sampling method;Rollover rules;Implied volatility;Index options;Taiwan Stock Exchange Index (TAIEX) options
    Date: 2011-04
    Issue Date: 2012-11-26 10:37:35 (UTC+8)
    Abstract: This paper proposes four methods by which to sample option prices using proxies for liquidity—1-, 2-, 3-, 7-, and 8-day rollover rules—for option trades in order to construct volatility index series. Based on the sampling method using the average of all midpoints of bid and ask quote option prices, the volatility indices constructed by one-minute tick data have less missing data and are at least as efficient in volatility forecasting as the method suggested by the CBOE. In addition, based on different rollover rules, illiquidity in Taiwan's options market does not lead to substantial errors in the forecasting effectiveness of the volatility indices. Finally, the forecasting ability of VIX based on different sampling methods is found to be superior to that of VXO in Taiwan.
    Relation: International review of economics and finance
    Appears in Collections:[Department of Finance] Journal Article

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