Determinants of implied volatility smiles - An empirical analysis using intraday DAX equity options

In recent years, the importance of high frequency trading and data has enormously increased. Using over one million trade-by-trade DAX equity options from the EUREX in 2012 with corresponding order books a detailed,... [ view full abstract ]

In recent years, the importance of high frequency trading and data has enormously increased.

Using over one million trade-by-trade DAX equity options from the EUREX in 2012 with corresponding order books a detailed, market-oriented and modern examination of the determinants of the implied volatility smile is performed and the existing high frequency gap in literature is addressed.

We confirm former low frequency results like moneyness, time, liquidity, volume and underlying moment dependencies. Additionally, new order book based measures, e.g. a control for buyer-/seller-motivated trades, are developed and a mean-reversion process for implied volatilities is revealed.