EconPapers    
Economics at your fingertips  
 

Forecasting Exchange Rate Volatility In The Presence Of Jumps

Bent Jesper Christensen (), Morten Nielsen () and Thomas Busch ()

No 1187, Working Paper from Economics Department, Queen's University

Abstract: We study measures of foreign exchange rate volatility based on high-frequency (5-minute) $/DM exchange rate returns using recent nonparametric statistical techniques to compute realized return volatility and its separate continuous sample path and jump components, and measures based on prices of exchange rate futures options, allowing calculation of option implied volatility. We find that implied volatility is an informationally efficient but biased forecast of future realized exchange rate volatility. Furthermore, we show that log-normality is an even better distributional approximation for implied volatility than for realized volatility in this market. Finally, we show that the jump component of future realized exchange rate volatility is to some extent predictable, and that option implied volatility is the dominant forecast of the future jump component.

Keywords: bipower variation; currency options; exchange rates; implied volatility; jumps; realized volatility (search for similar items in EconPapers)
JEL-codes: C1 F31 G1 (search for similar items in EconPapers)
Date: 2005-12
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6) Track citations by RSS feed

Downloads: (external link)
https://www.econ.queensu.ca/sites/econ.queensu.ca/files/qed_wp_1187.pdf First version 2005 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:qed:wpaper:1187

Access Statistics for this paper

More papers in Working Paper from Economics Department, Queen's University Contact information at EDIRC.
Bibliographic data for series maintained by Mark Babcock ().

 
Page updated 2019-09-20
Handle: RePEc:qed:wpaper:1187