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@article{ART002025685},
author={Woo-baik Lee},
title={The Impact of Change in Option Multiplier on the Relation between Spot Volatility and KOSPI 200 Option Trading},
journal={Journal of Insurance and Finance},
issn={2384-3209},
year={2015},
volume={26},
number={3},
pages={3-56}

TY - JOUR
AU - Woo-baik Lee
TI - The Impact of Change in Option Multiplier on the Relation between Spot Volatility and KOSPI 200 Option Trading
JO - Journal of Insurance and Finance
PY - 2015
VL - 26
IS - 3
PB - Korea Insurance Research Institute
SP - 3
EP - 56
SN - 2384-3209
AB - To mitigate the problems related to the excessive speculation and high participation of retail investors in the KOSPI 200 options market, the Financial Services Commission raised the option multiplier for KOSPI 200 options to KRW 500,000 equal to five times prior multiplier since March 9, 2012. The implementation of new multiplier is evaluated as the policy that induces radical change in liquidity on Korean derivatives market. This paper attempts to examine how this increase of multiplier influences the lead-lag relationship between market liquidity and volatility of spot market employing VAR. The main results are summarized as followings: (1) The daily conditional volatility of spot market employing AR(1)-GARCH(1,1) significantly decreased during implementation of new multiplier. This implies that the disturbing factors that affect volatility weakened with shrinkage in liquidity due to new multiplier. (2) The bidirectional causal relations between change in put-call ratio and market volatility consists throughout the pre and post period. This shows that informed option trader implements the trading strategy that predict short-term volatility but uninformed trader also tends to follow volatility contemporaneously. (3) ITM option traders tends to lead more strongly the short-term volatility during the period of new multiplier. Meanwhile, speculative trading significantly decreased due to low volatility. Overall, the empirical results indicate despite shrinkage in liquidity due to new multiplier, the informational efficiency of option market is robust without deterioration.
KW - Volatility;Put-Call Ratio;Causality;Options;Multiplier
DO -
UR -
ER -

Woo-baik Lee. (2015). The Impact of Change in Option Multiplier on the Relation between Spot Volatility and KOSPI 200 Option Trading. Journal of Insurance and Finance, 26(3), 3-56.

Woo-baik Lee. 2015, "The Impact of Change in Option Multiplier on the Relation between Spot Volatility and KOSPI 200 Option Trading", Journal of Insurance and Finance, vol.26, no.3 pp.3-56.

Woo-baik Lee "The Impact of Change in Option Multiplier on the Relation between Spot Volatility and KOSPI 200 Option Trading" Journal of Insurance and Finance 26.3 pp.3-56 (2015) : 3.

Woo-baik Lee. The Impact of Change in Option Multiplier on the Relation between Spot Volatility and KOSPI 200 Option Trading. 2015; 26(3), 3-56.

Woo-baik Lee. "The Impact of Change in Option Multiplier on the Relation between Spot Volatility and KOSPI 200 Option Trading" Journal of Insurance and Finance 26, no.3 (2015) : 3-56.

Woo-baik Lee. The Impact of Change in Option Multiplier on the Relation between Spot Volatility and KOSPI 200 Option Trading. Journal of Insurance and Finance, 26(3), 3-56.

Woo-baik Lee. The Impact of Change in Option Multiplier on the Relation between Spot Volatility and KOSPI 200 Option Trading. Journal of Insurance and Finance. 2015; 26(3) 3-56.

Woo-baik Lee. The Impact of Change in Option Multiplier on the Relation between Spot Volatility and KOSPI 200 Option Trading. 2015; 26(3), 3-56.

Woo-baik Lee. "The Impact of Change in Option Multiplier on the Relation between Spot Volatility and KOSPI 200 Option Trading" Journal of Insurance and Finance 26, no.3 (2015) : 3-56.