Price volatility forecasts for agricultural commodities: an application of volatility models, option implieds and composite approaches forfutures prices of corn and wheat
There has been substantial research effort aimed to forecast futures price return volatilities of financial and commodity assets. Some part of this research focuses on the performance of time-series models (in particular ARCH models) versus option implied volatility models. A significant part of the literature related to this topic shows that volatility forecast accuracy is not easy to estimate regardless of the forecasting model applied. This paper examines the volatility accuracy of volatility forecast models for the case of corn and wheat futures price returns. The models applied here are a univariate GARCH, a multivariate ARCH (the BEKK model), an option implied and a composite forecast model. The composite model includes time-series (historical) and option implied volatility forecasts. The results show that the option implied model is superior to the historical models in terms of accuracy and that the composite forecast model was the most accurate one (compared to the alternative models) having the lowest mean-square-errors. Given these findings it is recommended to use a composite forecast model if both types of data are available i.e. the time-series (historical) and the option implied. In addition, the results of this paper are consistent to that part of the literature that emphasizes the difficulty on being accurate about forecasting asset price return volatility. This is because the explanatory power (coefficient of determination) calculated in the forecast regressions were relatively low
Volume (Year): 3 (2009)
Issue (Month): 2 ()
|Contact details of provider:|| Web page: http://www.ccm.itesm.mx/egap/|
More information through EDIRC
References listed on IDEAS
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.:
- Bollerslev, Tim & Engle, Robert F & Wooldridge, Jeffrey M, 1988. "A Capital Asset Pricing Model with Time-Varying Covariances," Journal of Political Economy, University of Chicago Press, vol. 96(1), pages 116-131, February.
- Engle, Robert F. & Kroner, Kenneth F., 1995. "Multivariate Simultaneous Generalized ARCH," Econometric Theory, Cambridge University Press, vol. 11(01), pages 122-150, February.
- Clemen, Robert T., 1989. "Combining forecasts: A review and annotated bibliography," International Journal of Forecasting, Elsevier, vol. 5(4), pages 559-583.
- Barone-Adesi, Giovanni & Whaley, Robert E, 1987. " Efficient Analytic Approximation of American Option Values," Journal of Finance, American Finance Association, vol. 42(2), pages 301-320, June.
- Diebold, Francis X & Mariano, Roberto S, 2002.
"Comparing Predictive Accuracy,"
Journal of Business & Economic Statistics,
American Statistical Association, vol. 20(1), pages 134-144, January.
- Diebold, Francis X & Mariano, Roberto S, 1995. "Comparing Predictive Accuracy," Journal of Business & Economic Statistics, American Statistical Association, vol. 13(3), pages 253-263, July.
- Francis X. Diebold & Robert S. Mariano, 1994. "Comparing Predictive Accuracy," NBER Technical Working Papers 0169, National Bureau of Economic Research, Inc.
- Fang, Yue, 2003. "Forecasting combination and encompassing tests," International Journal of Forecasting, Elsevier, vol. 19(1), pages 87-94.
- Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-654, May-June.
- Clements,Michael & Hendry,David, 1998. "Forecasting Economic Time Series," Cambridge Books, Cambridge University Press, number 9780521634809, October.
- Clements,Michael & Hendry,David, 1998. "Forecasting Economic Time Series," Cambridge Books, Cambridge University Press, number 9780521632423, March.
- Bollerslev, Tim & Chou, Ray Y. & Kroner, Kenneth F., 1992. "ARCH modeling in finance : A review of the theory and empirical evidence," Journal of Econometrics, Elsevier, vol. 52(1-2), pages 5-59.
- Akgiray, Vedat, 1989. "Conditional Heteroscedasticity in Time Series of Stock Returns: Evidence and Forecasts," The Journal of Business, University of Chicago Press, vol. 62(1), pages 55-80, January.
- Ernst R. Berndt & Bronwyn H. Hall & Robert E. Hall & Jerry A. Hausman, 1974. "Estimation and Inference in Nonlinear Structural Models," NBER Chapters,in: Annals of Economic and Social Measurement, Volume 3, number 4, pages 653-665 National Bureau of Economic Research, Inc.
- Christensen, B. J. & Prabhala, N. R., 1998. "The relation between implied and realized volatility," Journal of Financial Economics, Elsevier, vol. 50(2), pages 125-150, November. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:ega:rafega:200909. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (José Antonio Núñez)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.