The Term Structure of Implied Forward Volatility: Recovery and Informational Content in the Corn Options Market

Thorsten M. Egelkraut, Philip Garcia and Bruce Sherrick

American Journal of Agricultural Economics, 2007, vol. 89, issue 1, 1-11

Abstract: Using a flexible method, we develop the term structure of volatility implied by corn futures options with differing maturities, and evaluate its ability to predict subsequent realized price volatility. The implied forward volatilities anticipate realized volatility well. For the nearby interval, the implied forward volatilities provide unbiased forecasts, and are superior to forecasts based on historical volatilities. For more distant intervals, early-year options predict the direction and magnitude of future volatility changes about as well as a three-year moving average and better than a naïve forecast. However, later-year options display less forecast power in part due to reduced trading activity. Copyright 2007, Oxford University Press.

Date: 2007
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Related works:
Working Paper: THE TERM STRUCTURE OF IMPLIED FORWARD VOLATILITY: RECOVERY AND INFORMATIONAL CONTENT IN THE CORN OPTIONS MARKET (2003)
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Persistent link: https://EconPapers.repec.org/RePEc:oup:ajagec:v:89:y:2007:i:1:p:1-11

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