The information content of implied volatility in agricultural commodity markets
AbstractIn this paper we compare the incremental information content of lagged implied volatility to GARCH models of conditional volatility for a collection of agricultural commodities traded on the New York Board of Trade. We also assess the relevance of the additional information provided by the implied volatility in a risk management framework. It is first shown that past squared returns only marginally improve the information content provided by the lagged implied volatility. Secondly, Value-at-Risk (VaR) models that rely exclusively on lagged implied volatility perform as well as VaR models where the conditional variance is modelled according to GARCH type processes. These results indicate that the implied volatility for options on future contracts in agricultural commodity markets has a high information content regarding conditional variance and VaR forecasts.
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Bibliographic InfoPaper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 2002038.
Date of creation: 00 Jun 2002
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implied volatility; GARCH; Value-at-Risk; futures; agricultural commodity markets;
Find related papers by JEL classification:
- C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
- C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
- G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
- Q13 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Markets and Marketing; Cooperatives; Agribusiness
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