GARCH-based Volatility Forecasts for Market Volatility Indices
Volatility forecasting is one of the main issues in the financial econometrics literature. Volatility measures may be derived from statistical models for conditional variance, or from option prices. In recent times, indices have been suggested which summarize the implied volatility of widely traded market index options. One such index is the so-called VXN, an average of 30-day ahead implied volatilities of the options written on the NASDAQ-100 Index. In this paper we show how forecasts obtained with traditional GARCH-type models can be used to forecast the volatility index VXN.
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