weighted_iv: Computes weighted average implied volatility for a maturity

In igidrfrg/ifrogs: Finance Routines Developed by the Finance Research Group

Description

This function computes the weighted average implied volatility corresponding to four weighting schemes ‘“vega”’, ‘“spread”’, ‘“volume”’, and ‘“elasticity”’ discussed in Grover and Thomas (2012).

Usage

 weighted_iv(prepped)

Arguments

prepped

A list of objects returned by prep_maturity for a given maturity.

Details

This function consumes as ‘prepped’ the output of the function ‘prep_maturity’.

Value

Returns a list of the following three elements:

maturity	Time to expiration in years as passed to weighted_iv via the object returned by prep_maturity.
schemes	The weighting scheme(s) as passed to weighted_iv via the object returned by prep_maturity.
iv	The weighted average implied volatility corresponding to each weighting schemes.

Author(s)

Akhil S. Behl [e-mail];
Rohini Grover [e-mail]

References

Grover, R. and Thomas, S. (2012). “Liquidity Considerations in Estimating Implied Volatility”, Journal of Futures Market, 32, 714 - 741.

See Also

prep_maturity

Examples

  # Example 1: Weighted average implied volatility for SPX near month options
  # using the Vega scheme.

  data(vix_spx)

  # Preparing data for near month spx options without filtering options with
  # zero traded volume.
  spx_near <- prep_maturity(maturity=vix_spx$opt_near$maturity[[1]],
                            riskfree=vix_spx$opt_near$riskfree[[1]],
                            carry=vix_spx$opt_near$riskfree[[1]],
                            type=vix_spx$opt_near$type,
                            strike=vix_spx$opt_near$strike,
                            underlying=vix_spx$opt_near$underlying,
                            schemes="vega",
                            bid=vix_spx$opt_near$bid,
                            ask=vix_spx$opt_near$ask,
                            tv_filter=FALSE)

  # Weighted average implied volatility                              
  spx_near_iv <- weighted_iv(prepped=spx_near)
  spx_near_iv

  # Example 2: Weighted average implied volatility for NIFTY near month options
  # for the Spread, Elasticity and Vega weighting schemes.
  
  data(vix_nifty)

  # Preparing data for near month nifty options and filtering options with
  # zero traded volume.
  nifty_near <- prep_maturity(maturity=vix_nifty$opt_near$maturity[[1]],
                              riskfree=vix_nifty$opt_near$riskfree[[1]],
                              carry=vix_nifty$opt_near$riskfree[[1]],
                              type=vix_nifty$opt_near$type,
                              strike=vix_nifty$opt_near$strike,
                              underlying=vix_nifty$opt_near$underlying,
                              schemes=c("spread", "elasticity", "vega"),
                              bid=vix_nifty$opt_near$bid,
                              ask=vix_nifty$opt_near$ask,
                              traded_vol=vix_nifty$opt_near$traded_vol,
                              tv_filter=TRUE)

  # Weighted average implied volatility
  nifty_near_iv <- weighted_iv(prepped=nifty_near)
  nifty_near_iv

igidrfrg/ifrogs documentation built on July 20, 2020, 2:02 p.m.