GARCH, Implied Volatilities and Implied Distributions: An Evaluation for Forecasting Purposes

Javiera Aguilar ()
Additional contact information
Javiera Aguilar: Monetary Policy Department, Central Bank of Sweden, Postal: Sveriges Riksbank, SE-103 37 Stockholm, Sweden

No 88, Working Paper Series from Sveriges Riksbank (Central Bank of Sweden)

Abstract: Volatility implied in option prices reflects the market participant's beliefs about future volatility and incorporates information that is not historical. Implied volatility is therefore widely believed to perform better as an indicator of future volatility than other forecasts based on historical time-series. In this study, I investigate the information content and predictive power of implied volatility from currency options traded on the OTC-market. Furthermore, I evaluate implied volatility both against other forecasts based on option prices and against volatility forecasts from models that are strictly historical by nature such as different GARCH models. I find that implied volatility has predictive power in forecasting future volatility, at least for shorter forecast horizons, although in most cases the forecasts are not unbiased. Furthermore, for some currencies GARCH volatility forecasts outperform implied volatility.

Keywords: Implied volatility; GARCH; Forecasting (search for similar items in EconPapers)
JEL-codes: E50 (search for similar items in EconPapers)
Pages: 20 pages
Date: 1999-08-01
New Economics Papers: this item is included in nep-ets, nep-fmk, nep-ifn and nep-lam
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.riksbank.com/upload/3522/WP_88.pdf (application/pdf)
Our link check indicates that this URL is bad, the error code is: 404 Not Found (http://www.riksbank.com/upload/3522/WP_88.pdf [301 Moved Permanently]--> https://www.riksbank.se/en-gb/upload/3522/WP_88.pdf [301 Moved Permanently]--> http://archive.riksbank.se/Upload/3522/WP_88.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:hhs:rbnkwp:0088

Access Statistics for this paper

More papers in Working Paper Series from Sveriges Riksbank (Central Bank of Sweden) Sveriges Riksbank, SE-103 37 Stockholm, Sweden. Contact information at EDIRC.
Bibliographic data for series maintained by Lena Löfgren ().