From various empirical work, it is well known that the volatility of asset returns changes over time. This might be one of the reasons that implied volatilities differ for options that only differ in time to maturity. This paper illustrates ARCH(5), GARCH(1.1) and EGARCH(1.1) methods for estimating the time varying term structure of volatility expectations revealed by KOSPI200 options prices. Short-term and Mid-term expectations are estimated for daily KOSPI200 options prices. This paper concludes that GARCH(1.1) methods gives better results than ARCH(5) and EGARCH(1.1) methods for estimating the term structure of implied volatilities in KOSPI 200 options prices. The expectation estimates can be used to value KOSPI200 options properly and to improve trading strategies.
