Options-based forecasts of futures prices in the presence of limit moves

Thorsten Egelkraut, Philip Garcia and Bruce Sherrick

Applied Economics, 2007, vol. 39, issue 2, 145-152

Abstract: The reported analysis examines a simultaneous estimation option-based approach to forecast futures prices in the presence of daily price limit moves. The procedure explicitly allows for changing implied volatilities by estimating the implied futures price and the implied volatility simultaneously. Using futures and futures options data for three agricultural commodities, it is found that the simultaneous estimation approach accounts for the abrupt changes in implied volatility associated with limit moves and generates more accurate price forecasts than conventional methods that rely on only one implied variable.

Date: 2007
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Working Paper: OPTIONS-BASED FORECASTS OF FUTURES PRICES IN THE PRESENCE OF LIMIT MOVES (2004)
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DOI: 10.1080/00036840500427478

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