No Model No Cry? Intraday Model-Free Implied Volatility and the Leverage Effect for Individual Equities

We analyze intraday model-free implied volatility for a large sample of individual equities. For that purpose we adapt the CBOE VIX methodology and derive an intraday measure based on 1-minute option data. Within a review of the model-free IV theory and CBOE replication methodology we highlight the data requirements and caveats which influence the quality of the results. Since weekly option contracts exist for only a small fraction of underlying stocks, we propose a cubic spline interpolation approach which aims at achieving the quality of the weekly VIX results. In a benchmark comparison it proves to be more accurate than the 2003 VIX method. Relying on our newly developed volatility measures, we analyze the leverage effect and find evidence thereof within an intraday context