Speaker: Prof. Tim Leung, Department of Industrial Engineering and Operations Research, Columbia University. 

 

Host: Prof. Shiqian Ma. 

 

Title: Implied Volatility of Leveraged ETF Options: Consistency and Scaling​

 

Abstract: 

The growth of the exchange-traded fund (ETF) industry has given rise to the trading of options written on ETFs and their leveraged counterparts (LETFs). Motivated by a number of empirical market observations, we study the relationship between the ETF and LETF implied volatility surfaces under general stochastic volatility models. Analytic approximations for prices and implied volatilities are derived for LETF ​options, along with rigorous error bounds. In these price and IV expressions, we identify their non-trivial dependence on the leverage ratio. Moreover, we introduce a "moneyness scaling" procedure for comparing implied volatilities across leverage ratios, and test it with empirical price data.

 

This talk is based on the papers: 

http://ssrn.com/abstract=2429900

http://ssrn.com/abstract=2164518

 

Biography:

Tim Leung is an Assistant Professor in the Industrial Engineering & Operations Research (IEOR) Department at Columbia University. He's also an affiliated faculty member of The Center for Financial Engineering and Institute for Data Sciences & Engineering. He received a Ph.D. from Princeton University, and a B.S. from Cornell University. His research focuses on the pricing, hedging, and trading of equity and credit derivatives. Professor Leung's work has been funded by the National Science Foundation, and published in journals, such as Finance & Stochastics, Mathematical Finance, and Quantitative Finance. 

 

Everyone is welcome to attend the talk!