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Forecasting with Option Implied Information

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  • Peter Christoffersen

    ()
    (University of Toronto - Rotman School of Management and CREATES)

  • Kris Jacobs

    ()
    (University of Houston - C.T. Bauer College of Business)

  • Bo Young Chang

    ()
    (Bank of Canada)

Abstract

This chapter surveys the methods available for extracting forward-looking information from option prices. We consider volatility, skewness, kurtosis, and density forecasting. More generally, we discuss how any forecasting object which is a twice differentiable function of the future realization of the underlying risky asset price can utilize option implied information in a well-defi?ned manner. Going beyond the univariate option-implied density, we also consider results on option-implied covariance, correlation and beta forecasting as well as the use of option-implied information in cross-sectional forecasting of equity returns.

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Bibliographic Info

Paper provided by School of Economics and Management, University of Aarhus in its series CREATES Research Papers with number 2011-46.

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Length: 65
Date of creation: 08 Dec 2011
Date of revision:
Handle: RePEc:aah:create:2011-46

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Web page: http://www.econ.au.dk/afn/

Related research

Keywords: Volatility; skewness; kurtosis; density forecasting; risk-neutral.;

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References

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