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

Giray Gözgör and Pinar Nokay

MPRA Paper from University Library of Munich, Germany

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.

Keywords: Option Pricing; European Type Vanilla Options; Historical Volatility; Volatility Estimation Models; Forecast Comparison (search for similar items in EconPapers)
JEL-codes: G19 (search for similar items in EconPapers)
Date: 2011-01-01
New Economics Papers: this item is included in nep-for and nep-ore
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Published in Journal of Money, Investment and Banking 19 (2011): pp. 130-142

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