CBOE_option_selection: CBOE Option selection scheme

In m-g-h/R.MFIV: Calculate Model Free Implied Volatility, i.e. the CBOE VIX from Option Quotes

CBOE Option selection scheme

Description

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This function performs the selection of out-of-the-money options as explained in the VIX whitepaper: "Select out-of-the-money put options with strike prices \mjseqn< K_0. Start with the put strike immediately lower than K0 and move to successively lower strike prices. Exclude any put option that has a bid price equal to zero (i.e., no bid). As shown below, once two puts with consecutive strike prices are found to have zero bid prices, no puts with lower strikes are considered for inclusion." The same principle applies to call options in ascending direction.

Usage

CBOE_option_selection(option_quotes, K_0)

Arguments

option_quotes	A data.table or "nest" of option quotes with three columns: K (numeric) - strike price in ascending order c (numeric) - call option price p (numeric) - put option price
K_0	numeric scalar, giving the theoretical at-the-money strike price (see CBOE_K_0)

Value

Returns a data.table with three columns:

• K (numeric) - strike price in ascending order

• c (numeric) - call option price

• p (numeric) - put option price

which is filtered according to the CBOE rules

m-g-h/R.MFIV documentation built on July 4, 2022, 3:35 a.m.