Forecasting implied volatility indices worldwide: A new approach

Stavros Degiannakis, George Filis and Hossein Hassani

MPRA Paper from University Library of Munich, Germany

Abstract: This study provides a new approach for implied volatility indices forecasting. We assess whether non-parametric techniques provide better predictions of implied volatility compared to standard forecasting models, such as AFRIMA and HAR. A combination of Singular Spectrum Analysis (SSA) and Holt-Winters (HW) model is applied on eight implied volatility indices for the period from February, 2001 to July, 2013. The findings confirm that the SSA-HW provides statistically superior one trading day and ten trading days ahead implied volatility forecasts world widely. Model-averaged forecasts suggest that the forecasting accuracy is further enhanced, for the ten-days ahead, when the SSA-HW is combined with an ARI(1,1) model. Additionally, the trading game reveals that the SSA-HW and the ARI-SSA-HW are able to generate significant average positive net daily returns in the out-of-sample period. The results are important for option pricing, portfolio management, value-at-risk and economic policy.

Keywords: Implied Volatility; Volatility Forecasting; Singular Spectrum Analysis; ARFIMA; HAR; Holt-Winters; Model Confidence Set; Combined Forecasts. (search for similar items in EconPapers)
JEL-codes: C14 C22 C52 C53 G15 (search for similar items in EconPapers)
Date: 2015-09-01
New Economics Papers: this item is included in nep-ets, nep-for, nep-net and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://mpra.ub.uni-muenchen.de/72084/1/MPRA_paper_72084.pdf original version (application/pdf)
https://mpra.ub.uni-muenchen.de/96452/1/MPRA_paper_96452.pdf revised version (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:72084

Access Statistics for this paper

More papers in MPRA Paper from University Library of Munich, Germany Ludwigstraße 33, D-80539 Munich, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Joachim Winter ().