Option based volatility forecasts can be divided into “model dependent” forecast, such as implied volatility, that is obtained by inverting the Black and Scholes formula, and “model free” forecasts, such as model free volatility, proposed by Britten-Jones and Neuberger (2000), that do not rely on a particular option pricing model. The aim of this paper is to investigate the unbiasedness and efficiency in predicting future realized volatility of the two option based volatility forecasts: implied volatility and model free volatility. The comparison is pursued by using intradaily data on the Dax-index options market. Our results suggest that Black-Scholes volatility subsumes all the information contained in historical volatility and is a better predictor than model free volatility.

Muzzioli, S.. "Option based forecasts of volatility: An empirical study in the DAX index options market" Working paper, CEFIN WORKING PAPERS, Dipartimento di Economia Marco Biagi - Università di Modena e Reggio Emilia, 2008. https://doi.org/10.25431/11380_605239

Option based forecasts of volatility: An empirical study in the DAX index options market

Muzzioli, S.
2008

Abstract

Option based volatility forecasts can be divided into “model dependent” forecast, such as implied volatility, that is obtained by inverting the Black and Scholes formula, and “model free” forecasts, such as model free volatility, proposed by Britten-Jones and Neuberger (2000), that do not rely on a particular option pricing model. The aim of this paper is to investigate the unbiasedness and efficiency in predicting future realized volatility of the two option based volatility forecasts: implied volatility and model free volatility. The comparison is pursued by using intradaily data on the Dax-index options market. Our results suggest that Black-Scholes volatility subsumes all the information contained in historical volatility and is a better predictor than model free volatility.
2008
Maggio
Muzzioli, S.
Muzzioli, S.. "Option based forecasts of volatility: An empirical study in the DAX index options market" Working paper, CEFIN WORKING PAPERS, Dipartimento di Economia Marco Biagi - Università di Modena e Reggio Emilia, 2008. https://doi.org/10.25431/11380_605239
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11380/605239
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