Implied Volatility in Options Markets and Conditional Heteroscedasticity in Stock Markets

Seungmook Choi and Mark Wohar ()

The Financial Review, 1992, vol. 27, issue 4, 503-30

Abstract: This study examines whether or not the volatility of stock index returns forecasted by a GARCH-M specification is consistent with the implied volatility observed in options markets. Recent data for the New York Stock Exchange Composite Index and Standard & Poor's 500 Index and their options are employed. The patterns of the term structure of implied volatility are compared with those of volatility estimates obtained from the GARCH process. The results indicate that the GARCH process appears to partially explain the variation of implied volatilities and the term structure of implied volatilities. Copyright 1992 by MIT Press.

Date: 1992
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Persistent link: https://EconPapers.repec.org/RePEc:bla:finrev:v:27:y:1992:i:4:p:503-30

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