• Journal of Information Technology Services
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• v.13 no.2
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• pp.151-161
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• 2014

KOSPI 200 index options market has the highest trading volume in the global options markets. The risk and return structure of options contracts are very complex. Volatility complicates options trading because volatility plays a central role in options pricing process. This study develops a trading system for KOSPI 200 index options trading using KOSPI 200 volatility index. We design a database system to handle the complex options information such as price, volume, maturity, strike price, and volatility using Oracle DBMS. We then develop options trading strategies to test how the volatility index is related to the prices of complicated options trading strategies. Back test procedure is presented with PL/SQL of Oracle DBMS. We simulate the suggested trading system using historical data set of KOSPI 200 index options from December 2008 to April 2012.

• Korean Management Science Review
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• v.27 no.3
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• pp.33-41
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• 2010

A lot of researches find negative volatility risk premium in options market. We can make a trading profit by exploiting the negative volatility premium. This study proposes negative volatility risk premium hypotheses in the KOSPI 200 stock price index options market and empirically test the proposed hypotheses with intra-day short straddle strategy. This strategy sells both at-the-money call option and at-the-money put option at market open and exits the position at market close. Using MySQL 5.1, we create our database with 1 minute option price data of the KOSPI 200 index options from 2004 to 2009. Empirical results show that negative volatility risk premium exists in the KOSPI 200 stock price index options market. Furthermore, intra-day short straddle strategy consistently produces annual profits except one year.

• Asia-Pacific Journal of Business
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• v.14 no.2
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• pp.33-49
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• 2023

Purpose - The purpose of this study is to examine the option selection and optimal trading of informed traders in KOSPI 200 options market based on the PIN (probability of informed trading) model of Easley et al.(2002). Design/methodology/approach - This study uses TAQ (trade and quote) data provided by Korean Exchanges (KRX) which contains all the bids and trades recorded during the continuous auction trading hours for the KOSPI 200 options between May 2019 and September 2020. Findings - First, there was no difference in the PIN between call and put options in the 2019 data, but the PIN of put options was slightly higher in 2020. Second, regardless of the type of option, the PIN was higher for in-the-money (ITM) options, and the PIN of out-of-the-money (OTM) options was the same as or slightly higher than that of at-the-money (ATM) options. Third, we found that the PIN decreases as trading liquidity increases, and fourth, the PIN increased sharply as the expiration date approached, especially for OTM options, while ITM and ATM options showed relatively weak effects. Fifth, for foreign and institutional investors, the periodicity of orders was observed in milliseconds, especially for foreign investors, where the periodicity of orders was clear and frequent in OTM options. The results suggest that the purpose of option trading varies depending on the moneyness from the perspective of the informed trader.

• The Korean Journal of Financial Management
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• v.25 no.2
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• pp.69-101
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• 2008

We empirically investigate the option leverage property that should be priced under much more general conditions than the Black-Scholes assumptions and the option redundancy property that is based on the assumption that the underlying asset price follows a one-dimensional diffusion process and examine the systematic risk factors implied in the return dynamics of KOSPI 200 index options. We find that the option leverage pattern is similar to the theoretical result but the options are not redundant securities and in the nonlinear structure of option payoffs, the traders of KOSPI 200 index options price the systematic higher-moments and the negative volatility risk premium significantly affects delta-hedged gains, even after accounting for jump fears. But the empirical evidence on jump risk preference is less conclusive.

• Communications for Statistical Applications and Methods
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• v.24 no.2
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• pp.163-172
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• 2017

Economic sentiment is typically measured using ordinary response options. The University of Michigan and the United States Conference Board are two widely used major indexes that have separately established independent consumer sentiment indexes based on three-level ordinary response options: positive, neutral, and negative. Notwithstanding, limited attention has been paid to the structural differences in their built-in formulas, which are referred to the disparate micro scoring schemes applied to an individual question. This paper examines the structural difference of the two indexes and then addresses situations where one is more reliable than the other. Real data from business tendency surveys of the Organization for Economic Cooperation and Development are used to illustrate our points empirically. As a conclusion, it is stressed that the two indexes should be handled with care when applied to economic sentiment comparison studies.

• Journal of Distribution Science
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• v.13 no.5
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• pp.53-60
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• 2015

Purpose - The purpose of this paper is to shed light on the importance of the slope and curvature of the volatility curve implied in option prices in the KOSPI 200 options index. A number of studies examine the implied volatility curve, however, these usually focus on cross-sectional characteristics such as the volatility smile. Contrary to previous studies, we focus on time-series characteristics; we investigate correlation dynamics among slope, curvature, and level of the implied volatility curve to capture market information embodied therein. Our study may provide useful implications for investors to utilize current market expectations in managing portfolios dynamically and efficiently. Research design, data, and methodology - For our empirical purpose, we gathered daily KOSPI200 index option prices executed at 2:50 pm in the Korean Exchange distribution market during the period of January 2, 2004 and January 31, 2012. In order to measure slope and curvature of the volatility curve, we use approximated delta distance; the slope is defined as the difference of implied volatilities between 15 delta call options and 15 delta put options; the curvature is defined as the difference between out-of-the-money (OTM) options and at-the-money (ATM) options. We use generalized method of moments (GMM) and the seemingly unrelated regression (SUR) method to verify correlations among level, slope, and curvature of the implied volatility curve with statistical support. Results - We find that slope as well as curvature is positively correlated with volatility level, implying that put option prices increase in a downward market. Further, we find that curvature and slope are positively correlated; however, the relation is weakened at deep moneyness. The results lead us to examine whether slope decreases monotonically as the delta increases, and it is verified with statistical significance that the deeper the moneyness, the lower the slope. It enables us to infer that when volatility surges above a certain level due to any tail risk, investors would rather take long positions in OTM call options, expecting market recovery in the near future. Conclusions - Our results are the evidence of the investor's increasing hedging demand for put options when downside market risks are expected. Adding to this, the slope and curvature of the volatility curve may provide important information regarding the timing of market recovery from a nosedive. For financial product distributors, using the dynamic relation among the three key indicators of the implied volatility curve might be helpful in enhancing profit and gaining trust and loyalty. However, it should be noted that our implications are limited since we do not provide rigorous evidence for the predictability power of volatility curves. Meaning, we need to verify whether the slope and curvature of the volatility curve have statistical significance in predicting the market trough. As one of the verifications, for instance, the performance of trading strategy based on information of slope and curvature could be tested. We reserve this for the future research.

• Journal of the Korean Society for Industrial and Applied Mathematics
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• v.26 no.4
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• pp.296-309
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• 2022

Timer options are one of the contingent claims that, for given the variance budget, its payoff depends on a random maturity in terms of the realized variance unlike the standard European vanilla option with a fixed time maturity. Since it was first launched by Société Générale Corporate and Investment Banking in 2007, the valuation of the timer options under several stochastic environment for the volatility has been conducted by many researches. In this study, we propose the pricing of timer power options combined with standard timer options and the index of the power to the underlying asset for the investors to actualize lower risks and higher returns at the same time under the uncertain markets. By using the asymptotic analysis, we obtain the first-order approximation of timer power options. Moreover, we demonstrate that our solution has been derived accurately by comparing it with the solution from the Monte-Carlo method. Finally, we analyze the impact of the stochastic volatility with regards to various parameters on the timer power options numerically.

• Management Science and Financial Engineering
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• v.21 no.2
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• pp.13-23
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• 2015

This study addresses the question as to whether the option prices have useful predictive information on the direction of stock markets by investigating a forecasting power of volatility curvatures and skewness premiums implicit in S&P 500 index option prices traded in Chicago Board Options Exchange. We begin by estimating implied volatility functions and risk neutral price densities every minute based on non-parametric method and then calculate volatility curvature and skewness premium using them. The rationale is that high volatility curvature or high skewness premium often leads to strong bullish sentiment among market participants. We found that the rate of return on the signal following trading strategy was significantly higher than that on the intraday buy-and-hold strategy, which indicates that the S&P500 index option prices have a strong forecasting power on the direction of stock index market. Another major finding is that the information contents of S&P 500 index option prices disappear within one minute, and so one minute-delayed signal following trading strategy would not lead to any excess return compared to a simple buy-and-hold strategy.

• Bulletin of the Korean Mathematical Society
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• v.46 no.2
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• pp.209-227
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• 2009

We examine a unified approach of calculating the closed form solutions of option price under stochastic volatility models using stochastic calculus and the Fourier inversion formula. In particular, we review and derive the option pricing formulas under Heston and correlated Stein-Stein models using a systematic and comprehensive approach which were derived individually earlier. We compare the empirical performances of the two stochastic volatility models and the Black-Scholes model in pricing KOSPI 200 index options.

• Journal of Korea Water Resources Association
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• v.39 no.2 s.163
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• pp.161-178
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• 2006

Heathcote (1998) identified a systematic, seven-step approach to general watershed planning and management. It consists of 1) understanding watershed components and processes, 2) identifying and ranking problems to be solved, 3) setting clear and specific goals, 4) developing a list of management options, 5) eliminating infeasible options 6) testing the effectiveness of remaining feasible options, and 7) developing the final options. In this study the first five steps of that process were applied to the Anyangcheon watershed in Korea, which experiences streamflow depletion, frequent flood damages, and poor water quality typical of highly urbanized watersheds. This study employed four indices: Potential Flood Damage(PFD), Potential Streamflow Depletion(PSD), Potential Water Quality Deterioration(PWQD) and Watershed Evaluation Index(WEI) to identify and quantify problems within the watershed. WEI is the integration index of the others. Composite programming which is a method of multi-criteria decision making is applied for the calculation of PSD, PWQD and WEI (Step 2). The primary goal of the study is to secure instreamflow in the Anyangcheon during dry seasons. The second management goals of flood damage mitigation and water quality enhancement are also set (Step 3). Management options include not only structural measures that can alter the existing conditions, but also nonstructural measures that rely on changes in human behavior or management practices (Step 4). Certain management options which are not technically, economically, and environmentally feasible, are eliminated (Step S). Therefore, this study addresses a Pre-feasibility study, which established a master plan using Steps 1 through 5.