Download or read book The Implied Volatility of Australian Index Options written by Sean Dowling and published by . This book was released on 2008 with total page 37 pages. Available in PDF, EPUB and Kindle. Book excerpt: We construct a new measure of Australian stock market volatility based on the implied volatility of Samp;P/ASX Index options. Dubbed the Australian Market Volatility Index (AVIX), it is constructed in a manner similar to the popular CBOE Market Volatility Index (VIX) in the United States. We examine the statistical properties of AVIX and the temporal relationship between AVIX changes and Samp;P/ASX 200 Index returns, and also investigate the presence of any seasonalities in AVIX before assessing AVIX as a predictor of future volatility. Consistent with VIX, we find that AVIX exhibits large negative first-order autocorrelation, and is also negatively correlated with lagged and contemporaneous Samp;P/ASX 200 Index returns. However, AVIX exhibits no asymmetry in its response to positive and negative return shocks. As a predictor of future volatility, AVIX performs poorly compared to historical volatility. Interestingly, when nonsynchronous trading is controlled for, we find that AVIX exhibits a much stronger relationship with future volatility.