DERIVATIVES RESEARCH PROJECT ON INDIAN STOCKS USING VOLATILITY SKEW STUDIES

Abstract

Exploiting stock volatility of equity derivatives to form a right strategy was the objective of the internship at The Money Roller. Gathering historic data from the NSE’s website for 3 various stocks was the first step. Data was collected from the NSE indices for all the 3 firms which included their historic call and put options data for last 10 years. Then Implied Volatility (IV) for each underlying was calculated for each year separately. This is named as the Historic-IV which is further used to form a strategy. Different techniques were employed to exploit the IV and strategies were formed accordingly. All the data collected was back tested to ensure the strength of the strategy formed. With each strategy the data was collected and prepared to use and was manipulated as per strategy’s requirement. To ensure the accuracy of the strategy various conditions were set in place to ensure the consistency of the results received in each case. Excel-VBA was used as a main tool to run all the analysis and back testing.