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Korean Journal of Financial Studies 2012;41(1):125-151.
Published online February 28, 2012.
Utilization of Volatility for ELW LP Evaluation System
Young Soo Choi, Sang Lyong Joo, Won Chang Lee
ELW LP 평가제도에 변동성 활용방안
최영수, 주상룡, 이원창
Abstract
This paper introduces a method to calculate ELW market volatility index, which is similar to VKOSPI obtained by using KOSPI 200 index option, and offers ELW market volatility disparity, which is used to compare the disparity between KOSPI 200 index option volatility and its ELW volatility. Using ELW volatility index and disparity, we analyze their characteristic and use them for ELW LP(Liquidity Provider) evaluation system. Our proposed volatility index is robust in comparative analysis by using KOSPI 200 option data and is affected by ELW exercise price range and ELW bid or ask price. Especially, volatility index using ELW market bid-ask price and ELW LP ask price are constantly higher than volatility index using KOSPI 200 option, and there is a difference between ask and mid price offered by ELW LP, but no differences between ask and mid price offered by market participant. This difference is due to bid-ask spread which is a ELW LP profit source. In this paper, MPD(Mean Percentage Disparity) and MAPD(Mean Absolute Percentage Disparity) are proposed to measure the mean and absolute mean of disparity level ratio from the benchmark. Also RMSE(Root Mean Square Disparity) is proposed to measure the volatility of disparity level. Our proposed measures can be applied to evaluate ELW LP evaluation system. In particular, empirical analysis shows that, due to the current LP evaluation system emphasizing the control of volatility for disparity, RMSE for ELW LP is well-managed, but MPD and MAPD are constantly expanding. Thus, we suggest to subdivide ELW LP evaluation system`s volatility sector into volatility of disparity and level of disparity.
Key Words: 변동성,변동성괴리도,변동성지수,ELW LP Evaluation System,LP 평가제도,VKOSPI,Volatility,Volatility Disparity,Volatility Index
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