Date of Award
Bachelor of Science (BS)
College of Business
Silver as a commodity is used in many different industrial applications as well as in jewelry. Silver is five times scarcer than gold (Stamey, Class Notes, 2011) is at this point and is becoming more and more popular with investors. Many investors instead of buying physical silver have looked to invest in the Silver ETF. An ETF is an Exchange Traded Fund, and is a way to trade a commodity like a stock. A price varies in proportion to the commodity, so as Silver moves so does SLV (Silver ETF). In this paper, the Silver ETE chosen was iShares Silver Trust Fund (NYSE: ARCA symbol SLV). The objective of the iShares Silver Trust is for the value of the shares of the iShares Silver Trust to reflect, at any given time, the price of silver owned by the iShares Silver Trust at that time, less the iShares Silver Trust's expenses and liabilities. We compare historical and implied volatility of the January 2010 SLV option prices are compared to November 2010 SLV to determine if these volatility measures are similar. In January 2010 silver prices and SLV were lower and there was very little movement. In November 2010, SLV was almost double the price and there were larger daily movements. The research question to be answered is as follows: Is there a difference between the historical and implied volatility for SLV between January 2010 (a period of lower prices and lower returns) and November 2010 (a period of higher prices and higher returns). To answer this question, the implied volatility had to be computed. The formula used to compute the implied volatility is based on (Brenner & Subrahmanyam, 1988) and required options pricing for each day of the months we examined. The data was purchased from an agency of the New York Stock Exchange, where SLV trades.
Downey, Jacob G., "Comparing Historical and Implied Volatility for a Silver Electronically Traded Fund Between Months of High and Low Returns" (2011). Honors Theses. 94.