KJCKorea
Journal Central

KOSPI200 futures & KOSPI200 options are based on same underlying asset. KOSPI200 futures notional trading amount on the spot market is 6-7 times, including the largest market in the korean derivatives. Existing research on options implied volatility was focused to examine the relationship between the implied volatility of the option and volatility or probability distribution of the underlying asset, the study considers the relevance of the futures market hard to find. Considering options and futures markets are connected by the put-call futures parity, this study analyzed the impact of futures price disparity ratio to the theoretical value of futures on implied volatility of the options. Major findings are: (1) futures price disparity ratio was a significant impact on the relative proportions of the Call options and Put options implied volatility than the absolute value of implied volatility.; (2) Volatility of ITM options showed that most affected by the futures price disparity ratio, and implied volatility of OTM option was the least affected.; (3) If the futures price is overvalued, implied volatility of the Call option is highly likely to appear in the order of ITM>ATM>OTM. And the implied volatility of the Put option is ITM<ATM<OTM likely to appear in the order.; (4) Influence on the option implied volatility of futures prices were found to have reduced the remaining days of the option to be more and more larger. The findings from this research may explain partially the volatility smile phenomenon of the options market.

theoretical value of futures, disparate ratio, implied volatility, volatility smile