Modelling Implied Volatility with OLS and Panel Data Models

This paper proposes an empirical estimation of implied volatility using OLS regression, Error Components, and Dummy Variable models, by regressing the implied volatility on time to maturity, the strike price and a dummy. Both the daily OLS equations and the panel data model provide more accurate estimates of Black and Scholes option prices than the bench-mark standard deviation of log returns. FT-SE 100 Index European options are using for empirical analysis. 

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