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Modelling the Implied Volatility of Options on Long Gilt Futures

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Author Info

  • Chris Brooks

    (University of Reading)

  • M. Currim Oozeer

    (University of Reading)

Abstract

This paper investigates the properties of implied volatility series calculated from options on Treasury bond futures, traded on LIFFE. We demonstrate that the use of near-maturity at the money options to calculate implied volatilities causes less mis-pricing and is therefore superior to, a weighted average measure encompassing all relevant options. We demonstrate that, whilst a set of macroeconomic variables has some predictive power for implied volatilities, we are not able to earn excess returns by trading on the basis of these predictions once we allow for typical investor transactions costs. Copyright Blackwell Publishers Ltd 2002.

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Bibliographic Info

Article provided by Wiley Blackwell in its journal Journal of Business Finance & Accounting.

Volume (Year): 29 (2002)
Issue (Month): 1&2 ()
Pages: 111-137

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Handle: RePEc:bla:jbfnac:v:29:y:2002:i:1&2:p:111-137

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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0306-686X

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Cited by:
  1. Lanne, Markku & Ahoniemi, Katja, 2008. "Implied Volatility with Time-Varying Regime Probabilities," MPRA Paper 23721, University Library of Munich, Germany.
  2. Konstantinidi, Eirini & Skiadopoulos, George & Tzagkaraki, Emilia, 2008. "Can the evolution of implied volatility be forecasted? Evidence from European and US implied volatility indices," Journal of Banking & Finance, Elsevier, vol. 32(11), pages 2401-2411, November.
  3. Ahoniemi, Katja & Lanne, Markku, 2007. "Joint Modeling of Call and Put Implied Volatility," MPRA Paper 6318, University Library of Munich, Germany.
  4. Adam Clements & Joanne Fuller, 2012. "Forecasting increases in the VIX: A time-varying long volatility hedge for equities," NCER Working Paper Series 88, National Centre for Econometric Research.
  5. Francesco Audrino & Dominik Colangelo, 2009. "Option trading strategies based on semi-parametric implied volatility surface prediction," University of St. Gallen Department of Economics working paper series 2009 2009-24, Department of Economics, University of St. Gallen.

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