ABSTRACT
The Hang Seng Volatility Index (VHSI) measures the 30-calendar-day expected volatility of the Hang Seng Index (HSI). It is derived from HSI put options and HSI call options in the two nearest-term expiration months in order to bracket a 30-calendar-day period. Long-term and regular trends of the HSI and the VHSI have intensive negative correlation and the VHSI is calculated from the implied volatility of out-of-the-money option which means the implied volatility of call and put options can reflect some information of the trend of the HSI. Usually, call and put options have different performances when the HSI goes upwards and downwards. So if the volatilities can be calculated separately and then the different changes of call–put spread are analyzed, it may form a good indicator of movement of the HSI. Based on these theories, this chapter describes calculation of the implied volatility of call and put options separately. The curves of implied volatilities of both call and put can be drawn and the distance between them, which is called “call–put spread” can be calculated.
