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Forecasting with Option Implied Information

  • Peter Christoffersen

    ()

    (University of Toronto - Rotman School of Management and CREATES)

  • Kris Jacobs

    ()

    (University of Houston - C.T. Bauer College of Business)

  • Bo Young Chang

    ()

    (Bank of Canada)

This chapter surveys the methods available for extracting forward-looking information from option prices. We consider volatility, skewness, kurtosis, and density forecasting. More generally, we discuss how any forecasting object which is a twice differentiable function of the future realization of the underlying risky asset price can utilize option implied information in a well-defi?ned manner. Going beyond the univariate option-implied density, we also consider results on option-implied covariance, correlation and beta forecasting as well as the use of option-implied information in cross-sectional forecasting of equity returns.

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Paper provided by Department of Economics and Business Economics, Aarhus University in its series CREATES Research Papers with number 2011-46.

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Date of creation: 08 Dec 2011
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