Volatility forecasts embedded in the prices of crude‐oil options

Dudley Gilder and Leonidas Tsiaras

Journal of Futures Markets, 2020, vol. 40, issue 7, 1127-1159

Abstract: This paper evaluates the ability of alternative option‐implied volatility measures to forecast crude‐oil return volatility. We find that a corridor implied volatility measure that aggregates information from a narrow range of option contracts consistently outperforms forecasts obtained by the popular Black–Scholes and model‐free volatility expectations, as well as those generated by a realized volatility model. This measure ranks favorably in regression‐based tests, delivers the lowest forecast errors under different loss functions, and generates economically significant gains in volatility timing exercises. Our results also show that the Chicago Board Options Exchange's “oil‐VIX” index performs poorly, as it routinely produces the least accurate forecasts.

Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
https://doi.org/10.1002/fut.22114

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:wly:jfutmk:v:40:y:2020:i:7:p:1127-1159

Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=0270-7314

Access Statistics for this article

Journal of Futures Markets is currently edited by Robert I. Webb

More articles in Journal of Futures Markets from John Wiley & Sons, Ltd.
Bibliographic data for series maintained by Wiley Content Delivery ().