Forecasting with Option-Implied Information

Peter Christoffersen, Kris Jacobs and Bo Young Chang

Chapter Chapter 10 in Handbook of Economic Forecasting, 2013, vol. 2, pp 581-656 from Elsevier

Abstract: This chapter surveys the methods available for extracting information from option prices that can be used in forecasting. We consider option-implied volatilities, skewness, kurtosis, and densities. More generally, we discuss how any forecasting object that is a twice differentiable function of the future realization of the underlying risky asset price can utilize option-implied information in a well-defined manner. Going beyond the univariate option-implied density, we also consider results on option-implied covariance, correlation and beta forecasting, as well as the use of option-implied information in cross-sectional forecasting of equity returns. We discuss how option-implied information can be adjusted for risk premia to remove biases in forecasting regressions.

Keywords: Volatility; Skewness; Kurtosis; Density forecasting; Risk-neutral (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (30)

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Related works:
Working Paper: Forecasting with Option Implied Information (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofch:2-581

DOI: 10.1016/B978-0-444-53683-9.00010-4

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