Study on model-free implied volatility of hang seng index options

David Liu*, Ran Lin, Lei Zhang

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

1 Citation (Scopus)


This paper carries out studies on the Model-Free Implied Volatility (MF-IV) and other two competing volatility measurements including Black-Scholes Implied Volatility (BS-IV) and GARCH (1,1) with respect to forecasting error and information content. It is known that MF-IV is a volatility measurement independent of any option pricing model and it provides a direct test on market efficiency. The study introduces data of Hang Seng Index Call Options over two different forecasting horizons to compare the forecasting performance. The empirical results indicate that MF-IV contains richer information content than BS-IV over both monthly and bi-monthly forecasting horizons. However, MF-IV has better predictive accuracy in monthly forecasting horizon, while BS-IV performs better over bi-monthly forecasting horizon.

Original languageEnglish
Pages (from-to)197-210
Number of pages14
JournalInternational Journal of Mathematics in Operational Research
Issue number2
Publication statusPublished - Apr 2012


  • BS model
  • Model-free volatility
  • Option pricing
  • Options
  • Volatility


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