Comparing forecast performances among volatility estimation methods in the pricing of european type currency options of USD-TL and Euro-TL
AbstractBy using the daily values of USD-TL and Euro-TL denominated European call and put option contracts, which are traded in the over-the-counter market, this study investigates whether there is a significant difference among the premiums of the contracts forecasted by historical volatility, EWMA(l =0.94 andl =0.97), GARCH(1,1) and EGARCH( p, q) models. In order to test the significance of the difference among particular volatility series forecasted by these different methods, test techniques suggested by Diebold and Mariano (1995) and West (1996) are used. Accordingly, the findings indicate that the differences in the pricing of the USD-TL and Euro-TL denominated call-put option contracts are statistically significant for some volatility forecasting methods.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. 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.
Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 34369.
Date of creation: 01 Jan 2011
Date of revision:
Option Pricing; European Type Vanilla Options; Historical Volatility; Volatility Estimation Models; Forecast Comparison;
Find related papers by JEL classification:
- G19 - Financial Economics - - General Financial Markets - - - Other
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-11-07 (All new papers)
- NEP-FOR-2011-11-07 (Forecasting)
- NEP-ORE-2011-11-07 (Operations Research)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Clark, Todd E. & West, Kenneth D., 2007.
"Approximately normal tests for equal predictive accuracy in nested models,"
Journal of Econometrics, Elsevier,
Elsevier, vol. 138(1), pages 291-311, May.
- Todd E. Clark & Kenneth D. West, 2005. "Approximately normal tests for equal predictive accuracy in nested models," Research Working Paper, Federal Reserve Bank of Kansas City RWP 05-05, Federal Reserve Bank of Kansas City.
- Kenneth D. West & Todd Clark, 2006. "Approximately Normal Tests for Equal Predictive Accuracy in Nested Models," NBER Technical Working Papers 0326, National Bureau of Economic Research, Inc.
- repec:wop:humbsf:2001-83 is not listed on IDEAS
- Zivot, Eric & Andrews, Donald W K, 1992.
"Further Evidence on the Great Crash, the Oil-Price Shock, and the Unit-Root Hypothesis,"
Journal of Business & Economic Statistics, American Statistical Association,
American Statistical Association, vol. 10(3), pages 251-70, July.
- Zivot, Eric & Andrews, Donald W K, 2002. "Further Evidence on the Great Crash, the Oil-Price Shock, and the Unit-Root Hypothesis," Journal of Business & Economic Statistics, American Statistical Association, American Statistical Association, vol. 20(1), pages 25-44, January.
- Tom Doan, . "ZIVOT: RATS procedure to perform Zivot-Andrews Unit Root Test," Statistical Software Components RTS00236, Boston College Department of Economics.
- Eric Zivot & Donald W.K. Andrews, 1990. "Further Evidence on the Great Crash, the Oil Price Shock, and the Unit Root Hypothesis," Cowles Foundation Discussion Papers, Cowles Foundation for Research in Economics, Yale University 944, Cowles Foundation for Research in Economics, Yale University.
- Lopez, Jose A, 2001.
"Evaluating the Predictive Accuracy of Volatility Models,"
Journal of Forecasting, John Wiley & Sons, Ltd.,
John Wiley & Sons, Ltd., vol. 20(2), pages 87-109, March.
- Jose A. Lopez, 1995. "Evaluating the predictive accuracy of volatility models," Research Paper, Federal Reserve Bank of New York 9524, Federal Reserve Bank of New York.
- Robert C. Merton, 1973. "Theory of Rational Option Pricing," Bell Journal of Economics, The RAND Corporation, The RAND Corporation, vol. 4(1), pages 141-183, Spring.
- West, K.D., 1994.
"Asymptotic Inference About Predictive Ability,"
Working papers, Wisconsin Madison - Social Systems
9417, Wisconsin Madison - Social Systems.
- Pagan, A.R. & Schwert, G.W., 1989.
"Alternative Models For Conditional Stock Volatility,"
Papers, Rochester, Business - General
89-02, Rochester, Business - General.
- Pagan, Adrian R. & Schwert, G. William, 1990. "Alternative models for conditional stock volatility," Journal of Econometrics, Elsevier, Elsevier, vol. 45(1-2), pages 267-290.
- Adrian R. Pagan & G. William Schwert, 1990. "Alternative Models For Conditional Stock Volatility," NBER Working Papers 2955, National Bureau of Economic Research, Inc.
- Nelson, Charles R & Siegel, Andrew F, 1987. "Parsimonious Modeling of Yield Curves," The Journal of Business, University of Chicago Press, University of Chicago Press, vol. 60(4), pages 473-89, October.
- Nelson, Daniel B, 1991. "Conditional Heteroskedasticity in Asset Returns: A New Approach," Econometrica, Econometric Society, Econometric Society, vol. 59(2), pages 347-70, March.
- Chesney, Marc & Scott, Louis, 1989. "Pricing European Currency Options: A Comparison of the Modified Black-Scholes Model and a Random Variance Model," Journal of Financial and Quantitative Analysis, Cambridge University Press, Cambridge University Press, vol. 24(03), pages 267-284, September.
- Bollerslev, Tim, 1986.
"Generalized autoregressive conditional heteroskedasticity,"
Journal of Econometrics, Elsevier,
Elsevier, vol. 31(3), pages 307-327, April.
- Tim Bollerslev, 1986. "Generalized autoregressive conditional heteroskedasticity," EERI Research Paper Series EERI RP 1986/01, Economics and Econometrics Research Institute (EERI), Brussels.
- Ercan Balaban & Asli Bayar & Robert Faff, 2006. "Forecasting stock market volatility: Further international evidence," The European Journal of Finance, Taylor & Francis Journals, Taylor & Francis Journals, vol. 12(2), pages 171-188.
- Pong, Shiuyan & Shackleton, Mark B. & Taylor, Stephen J. & Xu, Xinzhong, 2004. "Forecasting currency volatility: A comparison of implied volatilities and AR(FI)MA models," Journal of Banking & Finance, Elsevier, Elsevier, vol. 28(10), pages 2541-2563, October.
- Garman, Mark B. & Kohlhagen, Steven W., 1983. "Foreign currency option values," Journal of International Money and Finance, Elsevier, Elsevier, vol. 2(3), pages 231-237, December.
- Peter Ritchken & Rob Trevor, 1999. "Pricing Options under Generalized GARCH and Stochastic Volatility Processes," Journal of Finance, American Finance Association, American Finance Association, vol. 54(1), pages 377-402, 02.
- Hull, John C & White, Alan D, 1987. " The Pricing of Options on Assets with Stochastic Volatilities," Journal of Finance, American Finance Association, American Finance Association, vol. 42(2), pages 281-300, June.
- Benavides, Guillermo & Capistrán, Carlos, 2012.
"Forecasting exchange rate volatility: The superior performance of conditional combinations of time series and option implied forecasts,"
Journal of Empirical Finance, Elsevier,
Elsevier, vol. 19(5), pages 627-639.
- Guillermo Benavides & Carlos Capistrán, 2009. "Forecasting Exchange Rate Volatility: The Superior Performance of Conditional Combinations of Time Series and Option Implied Forecasts," Working Papers, Banco de MÃ©xico 2009-01, Banco de México.
- Asger Lunde & Peter Reinhard Hansen, 2001.
"A Forecast Comparison of Volatility Models: Does Anything Beat a GARCH(1,1)?,"
2001-04, Brown University, Department of Economics.
- Asger Lunde & Peter R. Hansen, 2005. "A forecast comparison of volatility models: does anything beat a GARCH(1,1)?," Journal of Applied Econometrics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 20(7), pages 873-889.
- Muradoglu, Yaz Gulnur & Metin, Kivilcim, 1996. "Efficiency of the Turkish Stock Exchange with respect to monetary variables: A cointegration analysis," European Journal of Operational Research, Elsevier, Elsevier, vol. 90(3), pages 566-576, May.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ekkehart Schlicht).
If references are entirely missing, you can add them using this form.