The forecast performance of competing implied volatility measures: the case of individual stocks

Research output: Working paper

Abstract

This study examines the information content of alternative implied volatility measures for the 30 components of the Dow Jones Industrial Average Index from 1996 until 2007. Along with the popular Black-Scholes and \model-free" implied volatility expectations, the recently proposed corridor implied volatil- ity (CIV) measures are explored. For all pair-wise comparisons, it is found that a CIV measure that is closely related to the model-free implied volatility, nearly always delivers the most accurate forecasts for the majority of the firms. This finding remains consistent for different forecast horizons, volatility definitions, loss functions and forecast evaluation settings.
Original languageEnglish
PublisherAarhus University
Publication statusUnpublished - 2010

Publication series

NameCREATES Research Papers
PublisherSchool of Economics and Management, University of Ã…rhus

Fingerprint

Forecast performance
Implied volatility
Loss function
Forecast horizon
Information content
Pairwise comparisons
Forecast evaluation
Black-Scholes
Function evaluation

Cite this

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abstract = "This study examines the information content of alternative implied volatility measures for the 30 components of the Dow Jones Industrial Average Index from 1996 until 2007. Along with the popular Black-Scholes and \model-free{"} implied volatility expectations, the recently proposed corridor implied volatil- ity (CIV) measures are explored. For all pair-wise comparisons, it is found that a CIV measure that is closely related to the model-free implied volatility, nearly always delivers the most accurate forecasts for the majority of the firms. This finding remains consistent for different forecast horizons, volatility definitions, loss functions and forecast evaluation settings.",
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The forecast performance of competing implied volatility measures : the case of individual stocks. / Tsiaras, Leonidas.

Aarhus University, 2010. (CREATES Research Papers).

Research output: Working paper

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