IDEAS home Printed from https://ideas.repec.org/p/cfi/fseres/cf603.html
   My bibliography  Save this paper

Forecasting Realized Volatility from Option Prices

Author

Listed:
  • Kenichiro Shiraya

    (Graduate School of Economics, The University of Tokyo)

  • Tomohisa Yamakami

    (Graduate School of Economics, The University of Tokyo)

  • Akira Yamazaki

    (Graduate School of Business Administration, Hosei University)

Abstract

This paper provides a comprehensive evaluation of volatility forecasters, each reflecting a distinct risk preference, for predicting realized volatility of the S&P 500 index from option prices. These forecasters are benchmarked against a risk-neutral counterpart, corresponding to the VIX index. Our empirical analysis shows that the forecaster drawn from Chabi-Yo and Loudis (2020) consistently delivers the strongest performance: it forms rational expectations for realized volatility, achieves superior out-of-sample predictive accuracy, and substantially improves trading outcomes in variance swap strategies. The remaining forecasters also provide effective predictors, whereas the risk-neutral benchmark exhibits relatively weak predictive performance. Incorporating skewness and kurtosis fails to enhance out-of-sample performance, suggesting that the original predictors are sufficient. This paper is available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=5371578

Suggested Citation

  • Kenichiro Shiraya & Tomohisa Yamakami & Akira Yamazaki, 2025. "Forecasting Realized Volatility from Option Prices," CARF F-Series CARF-F-603, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo.
    • Handle: RePEc:cfi:fseres:cf603
    as

    Download full text from publisher

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a
    for a similarly titled item that would be available.

    References listed on IDEAS

    as
    1. Keisuke Kizaki & Taiga Saito & Akihiko Takahashi, 2024. "Multi-agent Equilibrium Model with Heterogeneous Views on Fundamental Risks in Incomplete Market," CIRJE F-Series CIRJE-F-1224, CIRJE, Faculty of Economics, University of Tokyo.
    2. Epstein, Larry G. & Miao, Jianjun, 2003. "A two-person dynamic equilibrium under ambiguity," Journal of Economic Dynamics and Control, Elsevier, vol. 27(7), pages 1253-1288, May.
    3. Taiga Saito & Akihiko Takahashi, 2025. "Super-Long Discount Rates for Insurers in Incomplete Markets with Bond Supply Control," CIRJE F-Series CIRJE-F-1241, CIRJE, Faculty of Economics, University of Tokyo.
    4. Masashi Ieda, 2022. "Continuous-Time Portfolio Optimization for Absolute Return Funds," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 29(4), pages 675-696, December.
    5. An Chen & Thai Nguyen & Manuel Rach, 2021. "A collective investment problem in a stochastic volatility environment: The impact of sharing rules," Annals of Operations Research, Springer, vol. 302(1), pages 85-109, July.
    6. Gordan Žitković, 2012. "An example of a stochastic equilibrium with incomplete markets," Finance and Stochastics, Springer, vol. 16(2), pages 177-206, April.
    7. Kizaki, Keisuke & Saito, Taiga & Takahashi, Akihiko, 2024. "A multi-agent incomplete equilibrium model and its applications to reinsurance pricing and life-cycle investment," Insurance: Mathematics and Economics, Elsevier, vol. 114(C), pages 132-155.
    8. Keisuke Kizaki & Taiga Saito & Akihiko Takahashi, 2024. "Multi-agent Equilibrium Model with Heterogeneous Views on Fundamental Risks in Incomplete Market," CARF F-Series CARF-F-578, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo.
    9. Taiga Saito & Akihiko Takahashi, 2025. "Super-Long Discount Rates for Insurers in Incomplete Markets with Bond Supply Control," CARF F-Series CARF-F-599, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo, revised Aug 2025.
    10. Rosario Maggistro & Mario Marino & Antonio Martire, 2025. "A dynamic game approach for optimal consumption, investment and life insurance problem," Annals of Operations Research, Springer, vol. 346(2), pages 1377-1398, March.
    11. Cox, John C & Ingersoll, Jonathan E, Jr & Ross, Stephen A, 1985. "An Intertemporal General Equilibrium Model of Asset Prices," Econometrica, Econometric Society, vol. 53(2), pages 363-384, March.
    12. Peter O. Christensen & Kasper Larsen, 2014. "Incomplete Continuous-Time Securities Markets with Stochastic Income Volatility," The Review of Asset Pricing Studies, Society for Financial Studies, vol. 4(2), pages 247-285.
    13. Busra Zeynep Temocin & Ralf Korn & A. Sevtap Selcuk-Kestel, 2018. "Constant proportion portfolio insurance in defined contribution pension plan management under discrete-time trading," Annals of Operations Research, Springer, vol. 260(1), pages 515-544, January.
    14. Masashi Ieda, 2021. "Continuous-time Portfolio Optimization for Absolute Return Funds," Papers 2108.09985, arXiv.org, revised Mar 2022.
    15. Busra Zeynep Temocin & Ralf Korn & A. Sevtap Selcuk-Kestel, 2018. "Constant proportion portfolio insurance in defined contribution pension plan management," Annals of Operations Research, Springer, vol. 266(1), pages 329-348, July.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Daiya Mita & Taiga Saito & Akihiko Takahashi, 2025. "An Incomplete Multi-Currency Equilibrium Model with Heterogeneous Time Preferences and Subjective Beliefs," CIRJE F-Series CIRJE-F-1257, CIRJE, Faculty of Economics, University of Tokyo.
    2. Kizaki, Keisuke & Saito, Taiga & Takahashi, Akihiko, 2024. "A multi-agent incomplete equilibrium model and its applications to reinsurance pricing and life-cycle investment," Insurance: Mathematics and Economics, Elsevier, vol. 114(C), pages 132-155.
    3. Luis Escauriaza & Daniel C. Schwarz & Hao Xing, 2020. "Radner equilibrium and systems of quadratic BSDEs with discontinuous generators," Papers 2008.03500, arXiv.org, revised May 2021.
    4. Gonçalo Faria & João Correia-da-Silva, 2012. "The price of risk and ambiguity in an intertemporal general equilibrium model of asset prices," Annals of Finance, Springer, vol. 8(4), pages 507-531, November.
    5. Magnani, Marco, 2024. "An analysis of precautionary behavior in retirement decision making with an application to pension system reform," Insurance: Mathematics and Economics, Elsevier, vol. 117(C), pages 99-113.
    6. repec:dau:papers:123456789/5374 is not listed on IDEAS
    7. Martin Herdegen & Johannes Muhle-Karbe, 2018. "Stability of Radner equilibria with respect to small frictions," Finance and Stochastics, Springer, vol. 22(2), pages 443-502, April.
    8. Katia Colaneri & Daniele Mancinelli & Immacolata Oliva, 2024. "On the optimal design of a new class of proportional portfolio insurance strategies in a jump-diffusion framework," Papers 2407.21148, arXiv.org.
    9. Kim Weston & Gordan Žitković, 2020. "An incomplete equilibrium with a stochastic annuity," Finance and Stochastics, Springer, vol. 24(2), pages 359-382, April.
    10. Bruno Bouchard & Masaaki Fukasawa & Martin Herdegen & Johannes Muhle-Karbe, 2017. "Equilibrium Returns with Transaction Costs," Papers 1707.08464, arXiv.org, revised Apr 2018.
    11. Xiao Chen & Jin Hyuk Choi & Kasper Larsen & Duane J. Seppi, 2023. "Price impact in Nash equilibria," Finance and Stochastics, Springer, vol. 27(2), pages 305-340, April.
    12. Chen, An & Hieber, Peter & Nguyen, Thai, 2019. "Constrained non-concave utility maximization: An application to life insurance contracts with guarantees," European Journal of Operational Research, Elsevier, vol. 273(3), pages 1119-1135.
    13. Masaaki Fujii & Akihiko Takahashi, 2020. "A Finite Agent Equilibrium in an Incomplete Market and its Strong Convergence to the Mean-Field Limit," CARF F-Series CARF-F-495, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo.
    14. Masaaki Fujii & Akihiko Takahashi, 2020. "A Finite Agent Equilibrium in an Incomplete Market and its Strong Convergence to the Mean-Field Limit," CIRJE F-Series CIRJE-F-1156, CIRJE, Faculty of Economics, University of Tokyo.
    15. Peyman Alipour & Ali Foroush Bastani, 2023. "Value-at-Risk-Based Portfolio Insurance: Performance Evaluation and Benchmarking Against CPPI in a Markov-Modulated Regime-Switching Market," Papers 2305.12539, arXiv.org.
    16. Masaaki Fujii & Akihiko Takahashi, 2021. "Equilibrium Price Formation with a Major Player and its Mean Field Limit," CARF F-Series CARF-F-509, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo.
    17. Robert Jarrow, 2018. "Asset market equilibrium with liquidity risk," Annals of Finance, Springer, vol. 14(2), pages 253-288, May.
    18. Masaaki Fujii & Akihiko Takahashi, 2021. "Equilibrium Price Formation with a Major Player and its Mean Field Limit," Papers 2102.10756, arXiv.org, revised Feb 2022.
    19. Xiao Chen & Jin Hyuk Choi & Kasper Larsen & Duane J. Seppi, 2019. "Resolving asset pricing puzzles using price-impact," Papers 1910.02466, arXiv.org, revised Jun 2020.
    20. An Chen & Thai Nguyen & Manuel Rach, 2021. "A collective investment problem in a stochastic volatility environment: The impact of sharing rules," Annals of Operations Research, Springer, vol. 302(1), pages 85-109, July.
    21. Masaaki Fujii & Masashi Sekine, 2024. "Mean field equilibrium asset pricing model with habit formation," Papers 2406.02155, arXiv.org, revised Nov 2024.

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cfi:fseres:cf603. See general information about how to correct material in RePEc.

    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 CitEc recognized a bibliographic reference but did not link an item in RePEc 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 RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/catokjp.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.