[PDF] Yes Historical Volatility Does Contain Incremental Information Beyond Option Implied Volatility eBook

Author : Louis H. Ederington
Publisher :
Page : pages
File Size : 21,43 MB
Release : 1998
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ISBN :

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This paper examines (1) whether implied volatility is an unbiased informationally efficient predictor of actual future volatility and (2) its predictive power. If markets are efficient and the option pricing model is correct, then the implied volatility calculated from option prices should be an unbiased and informationally efficient estimator of future volatility, that is, it should correctly impound all available information including the asset's price history. However, numerous studies have found that implied volatility is not informationally efficient and that historical volatilities have incremental predictive power -- often out-predicting implied volatilities. For the Samp;P 500 options on futures we find the following. One, at least part of the apparent inefficiency of implied volatility from past studies stems from measurement error which biases estimates of the importance of implied volatility downward and of the importance of historical volatility upward. Once we correct for this error, there is no significant inefficiency. Two, implied volatility has strong predictive power -- considerably stronger than found by previous equity index studies. Three, stock market volatility prediction results are quite sensitive to (1) the forecasting horizon and (2) whether the data period covers the October 1987 stock market crash.

Author : Shiu-yan Eddie Pong
Publisher :
Page : 40 pages
File Size : 23,90 MB
Release : 2003
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We compare forecasts of the realized volatility of the pound, mark and yen exchange rates against the dollar, calculated from intraday rates, over horizons ranging from one day to three months. Our forecasts are obtained from a short memory ARMA model, a long memory ARFIMA model, a GARCH model and option implied volatilities. We find intraday rates provide the most accurate forecasts for the one-day and one-week forecast horizons while implied volatilities are at least as accurate as the historical forecasts for the one-month and three-month horizons. The superior accuracy of the historical forecasts, relative to implied volatilities, comes from the use of high frequency returns, and not from a long memory specification. We find significant incremental information in historical forecasts, beyond the implied volatility information, for forecast horizons up to one week.

Author : Martin Martens
Publisher :
Page : 0 pages
File Size : 17,59 MB
Release : 2008
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Recent evidence suggests option implied volatility provides better forecasts of financial volatility than time-series models based on historical daily returns. In particular it is found that daily GARCH forecasts have no or little incremental information over that already contained in implied volatilities. In this study both the measurement and the forecasting of financial volatility is improved using high-frequency data and the latest proposed model for volatility, a long memory model. The results indicate that volatility forecasts based on historical intraday returns do provide good volatility forecasts that can compete with implied volatility and sometimes even outperform implied volatility.

Author : Bent Jesper Christensen
Publisher :
Page : 52 pages
File Size : 10,36 MB
Release : 2008
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ISBN :

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A new research design is introduced for the empirical analysis of the relationship between implied volatility and ex-post realized volatility. The dynamics of volatility are emphasized, and the analysis is cast in terms of non-overlapping data, so that exactly one implied and one realized volatility estimate pertain to each period under consideration. The conclusions from the empirical analysis when using our design are significantly different from those previously reached. Recent literature indicates that implied volatility contains little information about future volatility, beyond that contained in the history of realized volatility. We show that on the contrary, implied volatility efficiently predicts future realized volatility and in particular subsumes the information content of past realized volatility.

Author : Ser-Huang Poon
Publisher : John Wiley & Sons
Page : 236 pages
File Size : 44,84 MB
Release : 2005-08-19
Category : Business & Economics
ISBN : 0470856157

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Financial market volatility forecasting is one of today's most important areas of expertise for professionals and academics in investment, option pricing, and financial market regulation. While many books address financial market modelling, no single book is devoted primarily to the exploration of volatility forecasting and the practical use of forecasting models. A Practical Guide to Forecasting Financial Market Volatility provides practical guidance on this vital topic through an in-depth examination of a range of popular forecasting models. Details are provided on proven techniques for building volatility models, with guide-lines for actually using them in forecasting applications.

Author : Robert C Merton
Publisher : Legare Street Press
Page : 0 pages
File Size : 36,3 MB
Release : 2022-10-27
Category :
ISBN : 9781015784017

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This work has been selected by scholars as being culturally important, and is part of the knowledge base of civilization as we know it. This work is in the "public domain in the United States of America, and possibly other nations. Within the United States, you may freely copy and distribute this work, as no entity (individual or corporate) has a copyright on the body of the work. Scholars believe, and we concur, that this work is important enough to be preserved, reproduced, and made generally available to the public. We appreciate your support of the preservation process, and thank you for being an important part of keeping this knowledge alive and relevant.