Thin films of ytterbium oxide have been deposited by ion beam sputtering from the oxide target on to fused silica substrates. The films that were in the thickness range 50 to 150 nm were characterised for spectral transmittance and reflectance and the refractive index, extinction coefficient and optical absorption edge. It is demonstrated that all these quantities an extremely sensitive to variation in thickness of the films. The refractive index increases with thickness while the extinction coefficient decreases with increase in thickness. The thickest films ( similar to 150 nm) have a refractive index of 1.75 at 600 nm which decreases to 1.55 for the 50 nm thick film. Most significantly the optical absorption edge varies from 4.85 to 4.63 eV over the same range of thickness. The observed behaviour has been fitted in to the single effective oscillator model and it is shown that this model predicts an increase in absorption edge with decreasing thickness. It is also shown, based on this model, that the variation in refractive index and absorption edge are inter-related. The dispersion energy, which is a measure of the strength of interband transitions increases with increase in thickness.