Template-type: ReDIF-Paper 1.0
Author-Name: Chatayan Wiphatthanananthakul
Author-Email: chatayan.w@gmail.com
Author-Workplace-Name: Faculty of Economics, Chiang Mai University and Chulachomklao Royal Military Academy Thailand
Author-Name: Michael McAleer
Author-Email: michael.mcaleer@gmail.com
Author-Workplace-Name: Universidad Complutense de Madrid.Department of Quantitative Economics
Title: A Simple Expected Volatility (SEV) Index: Application to SET50 Index Options
Abstract: In 2003, the Chicago Board Options Exchange (CBOE) made two key enhancements
	to the volatility index (VIX) methodology based on S&P options. The new VIX
	methodology seems to be based on a complicated formula to calculate expected
	volatility. In this paper, with the use of Thailand’s SET50 Index Options data,
	we modify the apparently complicated VIX formula to a simple relationship, which
	has a higher negative correlation between the VIX for Thailand (TVIX) and SET50
	Index Options. We show that TVIX provides more accurate forecasts of option prices
	than the simple expected volatility (SEV) index, but the SEV index outperforms
	TVIX in forecasting expected volatility. Therefore, the SEV index would seem to be a
	superior tool as a hedging diversification tool because of the high negative correlation
	with the volatility index.
Keywords: Financial markets, model selection, new products, price forecasting, time series, volatility forecasting.
Length: 39 pages 
Creation-Date: 2009
Number: 2009-16
X-File-Ref: http://america.sim.ucm.es/repec/ucm/ref/doicae0916.txt
File-URL: https://eprints.ucm.es/id/eprint/8698/1/0916.pdf
File-Format: Application/pdf
Handle: RePEc:ucm:doicae:0916