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Comparing forecast performances among volatility estimation methods in the pricing of european type currency options of USD-TL and Euro-TL

Author

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  • Gozgor, Giray
  • Nokay, Pinar

Abstract

By using the daily values of USD-TL and Euro-TL denominated European call and put option contracts, which are traded in the over-the-counter market, this study investigates whether there is a significant difference among the premiums of the contracts forecasted by historical volatility, EWMA(l =0.94 andl =0.97), GARCH(1,1) and EGARCH( p, q) models. In order to test the significance of the difference among particular volatility series forecasted by these different methods, test techniques suggested by Diebold and Mariano (1995) and West (1996) are used. Accordingly, the findings indicate that the differences in the pricing of the USD-TL and Euro-TL denominated call-put option contracts are statistically significant for some volatility forecasting methods.

Suggested Citation

  • Gozgor, Giray & Nokay, Pinar, 2011. "Comparing forecast performances among volatility estimation methods in the pricing of european type currency options of USD-TL and Euro-TL," MPRA Paper 34369, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:34369
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    References listed on IDEAS

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    More about this item

    Keywords

    Option Pricing; European Type Vanilla Options; Historical Volatility; Volatility Estimation Models; Forecast Comparison;

    JEL classification:

    • G19 - Financial Economics - - General Financial Markets - - - Other

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