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HISTORICAL AND IMPLIED VOLATILITY: AN INVESTIGATION INTO NSE NIFTY FUTURES AND OPTIONS

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Author(s): N R Parasuraman | P.Janaki Ramudu

Journal: Australian Journal of Business and Management Research
ISSN 1839-0846

Volume: 1;
Issue: 7;
Start page: 112;
Date: 2011;
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ABSTRACT
The broad objective of the paper is to have an understanding of the movement of volatility over a fair period in respect of the market portfolio. Also, it enables an understanding on how divergent the implied volatility has been from this estimate. It uses Volatility Cone, Volatility Smile and Volatility Surface as the parameters. The study takes different rolling periods percentiles of volatility. Hoadley Options Calculator is used for calculation and analysis purpose. The study empirically proves that there is a clear reversion to the mean as indicated by the volatility cone. The study of volatility smiles in respect of NIFTY options throws up different patterns. The Garch (1.1) model reveals that historical volatility for the period from 2004 to 2004 and for the year 2009 were estimated. Interestingly, but not totally surprisingly, the average implied volatility of calls and puts on Nifty during the period January to March 2010 showed differences.

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