OPTIONS-BASED FORECASTS OF FUTURES PRICES IN THE PRESENCE OF LIMIT MOVES

Thorsten M. Egelkraut and Philip Garcia

No 19021, 2004 Conference, April 19-20, 2004, St. Louis, Missouri from NCR-134 Conference on Applied Commodity Price Analysis, Forecasting, and Market Risk Management

Abstract: This 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 15 years of futures and futures options data for three agricultural commodities, we find 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.

Keywords: Demand and Price Analysis; Marketing (search for similar items in EconPapers)
Pages: 14
Date: 2004
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Persistent link: https://EconPapers.repec.org/RePEc:ags:ncrfou:19021

DOI: 10.22004/ag.econ.19021

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