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Options-Based Forecasts Of Futures Prices In The Presence Of Limit Moves

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  • Egelkraut, Thorsten M.
  • Garcia, Philip

Abstract

This analysis examines a simultaneous estimation option-based approach to forecast futures prices in the presence of daily price limit moves. The procedure explicitly allows for changing implied volatilities by estimating the implied futures price and the implied volatility simultaneously. Using 15 years of futures and futures options data for three agricultural commodities, we find that the simultaneous estimation approach accounts for the abrupt changes in implied volatility associated with limit moves and generates more accurate price forecasts than conventional methods that rely on only one implied variable.

Suggested Citation

  • Egelkraut, Thorsten M. & Garcia, Philip, 2004. "Options-Based Forecasts Of Futures Prices In The Presence Of Limit Moves," 2004 Conference, April 19-20, 2004, St. Louis, Missouri 19021, NCR-134 Conference on Applied Commodity Price Analysis, Forecasting, and Market Risk Management.
  • Handle: RePEc:ags:ncrfou:19021
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    File URL: http://purl.umn.edu/19021
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    Keywords

    Demand and Price Analysis; Marketing;

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