The Investigation of Implied Volatility for the FTSE100 Index Options: A Computational Approach

Zhao, Wenjing (2009) The Investigation of Implied Volatility for the FTSE100 Index Options: A Computational Approach. [Dissertation (University of Nottingham only)] (Unpublished)

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The aim of this study is to present a framework to model the implied volatility of the FTSE 100 index options with real time market data, and to present a prototype software that implements this framework. This dissertation seeks to combine the computational knowledge and option pricing literature, to design and implement a new java application for calculation of implied volatilities and henceforth justify the presence of volatility smile.

First of all, it will analyse the historical volatility across the FTSE 100 Index option market data and use it as an input to the Black-Scholes pricing formula, then compare the calculated option price with observed market price to justify the discrepancy produced by different volatility inputs. Secondly, it will calculate the implied volatility from the observed market price by inverting the Black-Scholes pricing formula and thus enabling us to analyse the presence of volatility smile.

The software developed during the process is based on java programming and will be the most important part of the dissertation output. It can be used by fellow students or researchers to simulate similar calculations in the future. Therefore, this dissertation would be a comparative study on implied volatility facilitated by computational methods based on the data from the UK financial markets.

Item Type: Dissertation (University of Nottingham only)
Keywords: FTSE 100, Black-Scholes, Implied Volatility, Volatility Smile, Java.
Depositing User: EP, Services
Date Deposited: 03 Feb 2010 14:13
Last Modified: 16 Feb 2018 14:02

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