The Empirical Research on the Performance of Pricing based on TAIEX Options under Different Volatility Models

Abstract

This study introduces a variety of volatility estimation methods, including historical volatility, implied volatility and VIX, to assess and compare the performance of pricing TAIEX Options. The empirical results indicate that the evaluation performance of implied volatility model outperformed those of historical volatility and VIX models. In the analysis of causes of option’s price errors by multiple variables regression, moneyness, time to maturity, volatility and index returns have significant impacts on the pricing errors, while trading volume and open interest do not have significant impacts on every pricing error. Even though the latter two factors are in the case of significance, their coefficients are negatively related to the absolute error.