Pricing Nikkei 225 Options Using Realized Volatility

Aït-Sahalia, Y., P. A. Mykland and L. Zhang (2005) “How Often to Sample A Continuous-Time Process in the Presence of Market Microstructure Noise”, Review of Financial Studies, Vol. 18, No. 2, pp. 351–416. Andersen, T. G., T. Bollerslev and F. X. Diebold (2007) “Roughing It Up: Including Jump Components in the Measurement, Modeling, and Forecasting of Return Volatility”, Review of Economics and Statistics, Vol. 89, No. 4, pp. 701–720. ——, ——, —— and H. Ebens (2001) “The Distribution of Realized Stock Return Volatility”, Journal of Financial Economics, Vol. 61, No. 1, pp. 43–76. ——, ——, —— and P. Labys (2003) “Modeling and Forecasting Realized Volatility”, Econometrica, Vol. 71, No. 2, pp. 579–625. ——, D. Dobrev and E. Schaumburg (2012) “Jump-Robust Volatility Estimation Using Nearest Neighbor Truncation”, Journal of Econometrics, Vol. 169, No. 1, pp. 75–93. Andrews, D. W. K. (1991) “Heteroskedasticity and Autocorrelation Consistent Covariance Matrix Estimation”, Econometrica, Vol. 59, No. 3, pp. 817–858. Baillie, R. T., T. Bollerslev and H. O. Mikkelsen (1996) “Fractionally Integrated Generalized Autoregressive Conditional Heteroskedasticity”, Journal of Econometrics, Vol. 74, No. 1, pp. 3–30. Bakshi, G., C. Cao and Z. Chen (1997) “Empirical Performance of Alternative Option Pricing Models”, Journal of Finance, Vol. 52, No. 5, pp. 2003–2049. Bandi, F. M. and J. R. Russell (2006) “Separating Microstructure Noise from Volatility”, Journal of Financial Economics, Vol. 79, No. 3, pp. 655–692. —— and —— (2008) “Microstructure Noise, Realized Variance, and Optimal Sampling”, Review of Economic Studies, Vol. 75, No. 2, pp. 339–369. —— and —— (2011) “Market Microstructure Noise, Integrated Variance Estimators, and the Accuracy of Asymptotic Approximations”, Journal of Econometrics, Vol. 160, No. 1, pp. 145–159. ——, —— and C. Yang (2008) “Realized Volatility Forecasting and Option Pricing”, Journal of Econometrics, Vol. 147, No. 1, pp. 34–46. Barndorff-Nielsen, O. E., P. R. Hansen, A. Lunde and N. Shephard (2004b) “Regular and Modified KernelBased Estimators of Integrated Variance: The Case with Independent Noise”, Economics Papers 2004-W28, Economics Group, Nuffield College, University of Oxford. ——, ——, —— and —— (2008) “Designing Realized Kernels to Measure the Ex-Post Variation of Equity Prices in the Presence of Noise”, Econometrica, Vol. 76, No. 6, pp. 1481–1536. ——, B. Nielsen, N. Shephard and C. Ysusi (2004a) “Measuring and Forecasting Financial Variability Using Realized Variance”, in A. C. Harvey, S. J. Koopman and N. Shephard, eds, State Space and Unobserved Components Models: Theory and Applications, Cambridge: Cambridge University Press, pp. 205–235. —— and N. Shephard (2001) “Non-Gaussian OU Based Models and Some of Their Uses in Financial Economics (with Discussions)”, Journal of the Royal Statistical Society, Series B, Vol. 63, No. 2, pp. 167–241. —— and —— (2002) “Econometric Analysis of Realized Volatility and Its Use in Estimating Stochastic Volatility Models”, Journal of the Royal Statistical Society, Series B, Vol. 64, No. 2, pp. 253–280. —— and —— (2004) “Power and Bipower Variation with Stochastic Volatility and Jumps (with Discussions)”, Journal of Financial Econometrics, Vol. 2, No. 1, pp. 1–48. Barone-Adesi, G., R. Engle and L. Mancini (2008) “A Garch Option Pricing with Filtered Historical Simulation”, Review of Financial Studies, Vol. 21, No. 3, pp. 1223–1258. Beran, J. (1994) Statistics for Long-Memory Processes, New York: Chapman & Hall. —— (1995) “Maximum Likelihood Estimation of the Differencing Parameter for Invertible Short and Long Memory Autoregressive Integrated Moving Average Models”, Journal of the Royal Statistical Society, Series B, Vol. 57, No. 4, pp. 659–672. Black, F. and M. Scholes (1973) “The Pricing of Options and Corporate Liabilities”, Journal of Political Economy, Vol. 81, No. 3, pp. 637–654. Bollerslev, T. (1986) “Generalized Autoregressive Conditional Heteroskedasticity”, Journal of Econometrics, Vol. 31, No. 3, pp. 307–327. ——, J. Marrone, L. Xu and H. Zhou (2013) “Stock Return Predictability and Variance Risk Premia: Statistical Inference and International Evidence”, Journal of Financial and Quantitative Analysis (forthcoming). —— and H. O. Mikkelsen (1996) “Modeling and Pricing Long Memory in Stock Market Volatility”, Journal of Econometrics, Vol. 73, No. 1, pp. 151–184. —— and —— (1999) “Long-Term Equity Anticipation Securities and Stock Market Volatility Dynamics”, Journal of Econometrics, Vol. 92, No. 1, pp. 75–99. ——, G. Tauchen and H. Zhou (2009) “Expected Stock Returns and Variance Risk Premia”, Review of Financial Studies, Vol. 22, No. 11, pp. 4463–4492. Campbell, J. Y., A. W. Lo and A. C. MacKinlay (1997) The Econometrics of Financial Markets, Princeton: Princeton University Press. Carlstein, E. (1986) “The Use of Subseries Values for Estimating the Variance of A General Statistic from A Stationary Sequence”, Annals of Statistics, Vol. 14, No. 3, pp. 1171–1179. Carr, P. and L. Wu (2009) “Variance Risk Premiums”, The Review of Financial Studies, Vol. 22, No. 3, pp. 1311–1341. Christoffersen, P., B. Feunou, K. Jacobs and N. Meddahi (2013a) “The Economic Value of Realized Volatility”, Journal of Financial and Quantitative Analysis (forthcoming). ——, S. Heston and K. Jacobs (2013b) “Capturing Option Anomalies with A Variance-Dependent Pricing Kernel”, Review of Financial Studies, Vol. 26, No. 8, pp. 1963–2006. Clements, M. P., A. B. Galvão and J. H. Kim (2008) “Quantile Forecasts of Daily Exchange Rate Returns from Forecasts of Realized Volatility”, Journal of Empirical Finance, Vol. 15, No. 4, pp. 729–750. Conrad, C. and B. R. Haag (2006) “Inequality Constraints in the Fractionally Integrate GARCH Model”, Journal of Financial Econometrics, Vol. 4, No. 3, pp. 413–449. Corsi, F. (2009) “A Simple Approximate Long-Memory Model of Realized Volatility”, Journal of Financial Econometrics, Vol. 7, No. 2, pp. 174–196. ——, N. Fusari and D. L. Vecchia (2013) “Realizing Smiles: Pricing Options with Realized Volatility”, Journal of Financial Economics, Vol. 107, No. 2, pp. 284–304. Diebold, F. X. (1988) Empirical Modeling of Exchange Rate Dynamics, Berlin: Springer-Verlag. Duan, J.-C. (1995) “The GARCH Option Pricing Model”, Mathematical Finance, Vol. 5, No. 1, pp. 13–32. —— and J.-G. Simonato (1998) “Empirical Martingale Simulation for Asset Prices”, Management Science, Vol. 44, No. 9, pp. 1218–1233. Engle, R. F. (1982) “Autoregressive Conditional Heteroskedasticity with Estimates of the Variance of United Kingdom Inflation”, Econometrica, Vol. 50, No. 4, pp. 987–1007. Giot, P. and S. Laurent (2004) “Modelling Daily Value-at-Risk Using Realized Volatility and ARCH Type Models”, Journal of Empirical Finance, Vol. 11, No. 3, pp. 379–398. Hansen, P. R., Z. Huang and H. Shek (2012) “Realized GARCH: A Joint Model for Returns and Realized Measures of Volatility”, Journal of Applied Econometrics, Vol. 27, No. 6, pp. 877–906. —— and A. Lunde (2005a) “A Forecast Comparison of Volatility Models: Does Anything Beat A GARCH(1,1)?”, Journal of Applied Econometric, Vol. 20, No. 7, pp. 873–889. —— and —— (2005b) “A Realized Variance for the Whole Day Based on Intermittent High-Frequency Data”, Journal of Financial Econometrics, Vol. 3, No. 4, pp. 525–554. —— and —— (2006) “RealizedVariance and Market Microstructure Noise”, Journal of Business and Economic Statistics, Vol. 24, No. 2, pp. 127–161. Harris, L. (1990) “Estimation of Stock Price Variances and Serial Covariances from Discrete Observations”, Journal of Financial and Quantitative Analysis, Vol. 25, No. 3, pp. 291–306. Heston, S. and S. Nandi (2000) “A Closed-Form Garch Option Valuation Model”, Review of Financial Studies, Vol. 13, No. 3, pp. 585–625. Huang, X. and G. Tauchen (2005) “The Relative Contribution of Jumps to Total Price Variance”, Journal of Financial Econometrics, Vol. 3, No. 4, pp. 456–499. Jacod, J., Y. Li, P.A. Mykland, M. Podolskij and M. Vetter (2009) “Microstructure Noise in the Continuous Case: The Pre-AveragingApproach”, Stochastic Processes and Their Applications, Vol. 119, No.7, pp. 2249–2276. Koopman, S. J., B. Jungbacker and E. Hol (2005) “Forecasting Daily Variability of the S&P 100 Stock Index Using Historical, Realized and Implied Volatility Measurements”, Journal of Empirical Finance, Vol. 12, No. 3, pp. 445–475. Kunitomo, N. and S. Sato (2008) “Separating Information Maximum Likelihood Estimation of Realized Volatility and Covariance with Micro-Market Noise”, Discussion Paper CIRJE-F-581, Graduate School of Economics, University of Tokyo. Martens, M. (2002) “Measuring and Forecasting S&P 500 Index-Futures Volatility Using High-Frequency Data”, Journal of Futures Markets, Vol. 22, No. 6, pp. 497–518. Meddahi, N. (2002) “A Theoretical Comparison between Integrated and Realized Volatility”, Journal of Applied Econometrics, Vol. 17, No. 5, pp. 479–508. Nagakura, D. and T. Watanabe (2013) “A State Space Approach to Estimating Integrated Variance under the Existence of Microstructure Noise”, Journal of Financial Econometrics, doi:10.1093/jjfinec/ nbt015. Nelson, D. B. (1991) “Conditional Heteroskedasticity in Asset Returns: A New Approach”, Econometrica, Vol. 59, No. 2, pp. 247–370. Newey, W. K. and K. D. West (1987) “A Simple, Positive Semi-Definite, Heteroskedasticity and Autocorrelation Consistent Covariance Matrix”, Econometrica, Vol. 55, No. 3, pp. 703–708. Nishina, K. and M. N. Nabil (1997) “Return Dynamics of Japanese Stock Index Options”, Japanese Economic Review, Vol. 48, No. 1, pp. 43–64. Oya, K. (2011) “Bias Corrected Realized Variance under Dependent Microstructure Noise”, Mathematics and Computers in Simulation, Vol. 81, No. 7, pp. 1290–1298. Roll, R. (1984) “A Simple Implicit Measure of the Effective Bid-Ask Spread in An Efficient Market”, Journal of Finance, Vol. 39, No. 4, pp. 1127–1139. Schoffer, O. (2003) “HY-A-PARCH: A Stationary A-PARCH Model with Long Memory”, Technical Report 4003, Fachbereich Statitik, Universität Dortmunt. Stentoft, L. (2008) “Option Pricing Using Realized Volatility”, Working Paper at CREATES, University of Copenhagen. Takahashi, M., Y. Omori and T. Watanabe (2009) “Estimating Stochastic Volatility Models Using Daily Returns and Realized Volatility Simultaneously”, Computational Statistics & Data Analysis, Vol. 53, No. 6, pp. 2404–2426. Taylor, S. J. (2001) “Consequences for Option Pricing for a Long Memory in Volatility”, Working Paper 2001/017, Lancaster University Management School. Tse, Y. K. (1998) “The Conditional Heteroskedasticity of the Yen–Dollar Exchange Rate”, Journal of Applied Econometrics, Vol. 13, No. 1, pp. 49–55. Ubukata, M. and K. Oya (2009) “Estimation and Testing for Dependence in Market Microstructure Noise”, Journal of Financial Econometrics, Vol. 7, No. 2, pp. 106–151. —— and T. Watanabe (2013) “Market Variance Risk Premiums in Japan for Asset Predictability”, Empirical Economics, doi: 10.1007/s00181-013-0741-2. Watanabe, T. (2012) “Quantile Forecasts of Financial Returns Using Realized GARCH Models”, Japanese Economic Review, Vol. 63, No. 1, pp. 68–80. Zhang, L. (2006) “Efficient Estimation of Stochastic Volatility Using Noisy Observations: A Multi-Scale Approach”, Bernoulli, Vol. 12, No. 6, pp. 1019–1043. ——, P. A. Mykland and Y. Aït-Sahalia (2005) “A Tale of Two Time Scales: Determining Integrated Volatility with Noisy High-Frequency Data”, Journal of the American Statistical Association, Vol. 100, No. 472, pp. 1394–1411. Zhou, B. (1996) “High-Frequency Data and Volatility in Foreign-Exchange Rates”, Journal of Business & Economic Statistics, Vol. 14, No. 1, pp. 45–52. Zhou, H. (2010) “Variance Risk Premia, Asset Predictability Puzzles, and Macroeconomic Uncertainty”, Finance and Economics Discussion Series 2010-14, Board of Governors of the Federal Reserve System (U.S.).