Tracking Brazilian Exchange Rate Volatility
This paper examines the relation between dollar-real exchange rate volatility implied in option prices and subsequent realized volatility. It investigates whether implied volatilities contain information about volatility over the remaining life of the option which is not present in past returns. Using GMM estimation consistent with telescoping observations evidence suggests that implied volatilities give superior forecasts of realized volatility if compared to GARCH(p,q), and Moving Average predictors, and that econometric models forecasts do not provide significant incremental information to that contained in implied volatilities.
|Date of creation:||11 Aug 2004|
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