The Economic Value Of Using Realized Volatility In Forecasting Future Implied Volatility
AbstractAbstract We examine the economic benefits of using realized volatility to forecast future implied volatility for pricing, trading, and hedging in the S&P 500 index options market. We propose an encompassing regression approach to forecast future implied volatility, and hence future option prices, by combining historical realized volatility and current implied volatility. Although the use of realized volatility results in superior performance in the encompassing regressions and out-of-sample option pricing tests, we do not find any significant economic gains in option trading and hedging strategies in the presence of transaction costs. Copyright (c) 2009 The Southern Finance Association and the Southwestern Finance Association.
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Bibliographic InfoArticle provided by Southern Finance Association & Southwestern Finance Association in its journal Journal of Financial Research.
Volume (Year): 32 (2009)
Issue (Month): 3 ()
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- Camille Cornand & Céline Gimet, 2012. "The 2007-2008 financial crisis: Is there evidence of disaster myopia?," Post-Print, HAL halshs-00617127, HAL.
- Josifidis, Kosta & Allegret, Jean-Pierre & Gimet, Céline & Pucar, Emilija Beker, 2014. "Macroeconomic policy responses to financial crises in emerging European economies," Economic Modelling, Elsevier, Elsevier, vol. 36(C), pages 577-591.
- Camille Cornand & Céline Gimet, 2011. "The 2007-2008 financial crisis : Is there evidence of disaster myopia ?," Working Papers, Groupe d'Analyse et de ThÃ©orie Economique (GATE), Centre national de la recherche scientifique (CNRS), UniversitÃ© Lyon 2, Ecole Normale SupÃ©rieure 1125, Groupe d'Analyse et de Théorie Economique (GATE), Centre national de la recherche scientifique (CNRS), Université Lyon 2, Ecole Normale Supérieure.
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