Title: Long memory and volatility behaviour in Paris option market

Authors: Nessim Souissi; Abderrahmen Aloulou

Addresses: Department of Economics, Faculty of Economics and Management, SFAX-TUNISIA University, URECA Research Unit, Tunisia ' Department of Economics, Faculty of Economics and Management, SFAX-TUNISIA University, URECA Research Unit, Tunisia

Abstract: This paper investigates the relationship between realised-implied volatility, by examining the empirical evidence for the aspect followed by two volatility process. The analysis is undertaken using daily from May 2005 to April 2009 at the EURONEXT. We consider semi parametric frequency domain analysis of fractional cointegration between long memory processes. The estimation of predictive regression narrow band least square (NBLS) is based on the Fourier frequencies number included in the spectral regression. Consistent with exploration the GPH and Local Whittle estimators, the results notice the non stationary long memory in realised-implied volatility and the mean reverting behaviour. An application to NBLS model, we indicate that implied volatility is a consistent estimate of realised volatility. The contribution of this paper is to demonstrate that options prices display long memory and that form of long memory is persistence during the 2008 crisis.

Keywords: realised volatility; implied volatility; long memory; fractional cointegration; narrow band least squares; NBLS method; options market; options prices; financial crisis; France.

DOI: 10.1504/IJBD.2015.073789

International Journal of Bonds and Derivatives, 2015 Vol.1 No.4, pp.273 - 283

Received: 15 Dec 2014
Accepted: 10 Mar 2015

Published online: 22 Dec 2015 *

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