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Options-Based Forecasts Of Futures Prices In The Presence Of Limit Moves

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  • Egelkraut, Thorsten M.
  • Garcia, Philip
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    Abstract

    This analysis examines a simultaneous estimation option-based approach to forecast futures prices in the presence of daily price limit moves. The procedure explicitly allows for changing implied volatilities by estimating the implied futures price and the implied volatility simultaneously. Using 15 years of futures and futures options data for three agricultural commodities, we find that the simultaneous estimation approach accounts for the abrupt changes in implied volatility associated with limit moves and generates more accurate price forecasts than conventional methods that rely on only one implied variable.

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    File URL: http://purl.umn.edu/19021
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    Bibliographic Info

    Paper provided by NCR-134 Conference on Applied Commodity Price Analysis, Forecasting, and Market Risk Management in its series 2004 Conference, April 19-20, 2004, St. Louis, Missouri with number 19021.

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    Date of creation: 2004
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    Handle: RePEc:ags:ncrfou:19021

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    Web page: http://www.agebb.missouri.edu/ncrext/ncr134/

    Related research

    Keywords: Demand and Price Analysis; Marketing;

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