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Forecasting Volatilities of Corn Futures at Distant Horizons

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  • Wu, Feng
  • Guan, Zhengfei

Abstract

Accurately forecasting volatility at distant horizons is critical for managing long-term risk in agriculture. Given the poor performance of GARCH-type models at long-term volatility forecast, we develop a risk-adjusted implied volatility, which adjust the risk-neutral implied volatility by correctly accounting for the volatility risk premium. The paper evaluates the performance of the new implied volatility in the corn futures market relative to two alternative forecasts- a three-year moving average forecast and a naïve forecast. The finding from the study is that the new implied volatilities have at least as well as or stronger predictive power than alternative predicting approaches.

Suggested Citation

  • Wu, Feng & Guan, Zhengfei, 2010. "Forecasting Volatilities of Corn Futures at Distant Horizons," 2010 Annual Meeting, July 25-27, 2010, Denver, Colorado 61316, Agricultural and Applied Economics Association.
    • Handle: RePEc:ags:aaea10:61316
    DOI: 10.22004/ag.econ.61316
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    Keywords

    Demand and Price Analysis;

    Statistics

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