Discussion Papers, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes 2000,97
Based on daily VDAX data this paper analyzes the factors governing the movements of implied volatilities of options on the German stock index DAX. Using Principal Components Analysis over the sample period from 1996 to 1997, we derive common factors representing shift and curvature of the term structure of at the money DAX options. We present a risk management tool for options portfolios using the Maximum Loss methodology based on Principal Components.
Implied Volatility DAX Options Term Structure Movements PCA Maximum Loss