This file is part of IDEAS, which uses RePEc data


[ Papers | Articles | Software | Books | Chapters | Authors | Institutions | JEL Classification | NEP reports | Search | New papers by email | Author registration | Rankings | Volunteers | FAQ | Blog | Help! ]

Volatility Indexes seem to point to the Past

Author info | Abstract | Publisher info | Download info | Related research | Statistics
Author Info
Schroeder, Gerhard

Additional information is available for the following registered author(s):

Abstract

In theory, by institutional trading options (wholesale), professional market participants asses and set future volatilities that can be identified for the retail using the Black-Scholes-formula in reverse. In reality, as regression analysis suggests, it is historical market data which instead are used to determine future values. Further analysis shows that historical volatilities are insufficient predictors. Yet this questionable practice is considered by international accounting standards (IAS/IFRS) to allow "historical data and implied volatilities" for "reasonable estimations". In a kind of short-circuit, historical volatilities are introduced into option trading and returned as implied volatility-indexes. In reality, both differ significantly from future values. Comparing the volatility of the past nine weeks with that of the following nine weeks, estimation error ranges from four to over ten percentage points. (No paper found in the net challenging the implied hypothesis of IAS 39/AG82(f))

Download Info
To download:

If you experience problems downloading a file, check if you have the proper application to view it first. Information about this may be contained in the File-Format links below. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://mpra.ub.uni-muenchen.de/18025/
File Format:
File Function: orginal version
Download Restriction: no
File URL: http://mpra.ub.uni-muenchen.de/18400/
File Format:
File Function: revised version
Download Restriction: no

Publisher Info
Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 18025.

Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Length:
Date of creation: 20 Oct 2009
Date of revision: 05 Nov 2009
Handle: RePEc:pra:mprapa:18025

Contact details of provider:
Postal: Schackstr. 4, D-80539 Munich, Germany
Phone: +49-(0)89-2180-2219
Fax: +49-(0)89-2180-3900
Web page: http://mpra.ub.uni-muenchen.de
More information through EDIRC

For technical questions regarding this item, or to correct its listing, contact: (Ekkehart Schlicht).

Related research
Keywords: Volatility; Prediction; EU Accounting Standards; IAS; Correlation; GARCH; Derivatives;

Find related papers by JEL classification:
F37 - International Economics - - International Finance - - - International Finance Forecasting and Simulation
B23 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Quantitative and Mathematical
H83 - Public Economics - - Miscellaneous Issues - - - Public Administration
E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General

This paper has been announced in the following NEP Reports:

Statistics
Access and download statistics

Did you know? RePEc data is maintained by each archive holder on its own website. Nothing is held centrally.

This page was last updated on 2009-11-30.

This information is provided to you by IDEAS at the Department of Economics, College of Liberal Arts and Sciences, University of Connecticut using RePEc data on a server sponsored by the Society for Economic Dynamics.