Forecasting Using Alternative Measures of Model-Free Option-Implied Volatility

Yao, Xingzhi and Izzeldin, Marwan (2018) Forecasting Using Alternative Measures of Model-Free Option-Implied Volatility. Journal of Futures Markets, 38 (2). pp. 199-218. ISSN 0270-7314

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Abstract

This paper evaluates the performance of various measures of model-free implied volatility in predicting returns and realized volatility. The critical role of the out-of-the money call options is highlighted through an investigation of the relevance of different components of the model-free implied volatility. The Monte Carlo simulations show that: first, volatility forecasting performance of various measures can be enhanced by employing an interpolation-extrapolation technique; second, for most measures considered, gains in their predictive power for future returns can be obtained by implementing an interpolation procedure. An empirical application using SPX options recorded from 2003 to 2013 further illustrates these claims.

Item Type:
Journal Article
Journal or Publication Title:
Journal of Futures Markets
Additional Information:
This is the peer reviewed version of the following article: Yao X, Izzeldin M. Forecasting using alternative measures of model-free option-implied volatility. J Futures Markets. 2018;38:199–218. https://doi.org/10.1002/fut.21881 which has been published in final form at http://onlinelibrary.wiley.com/doi/10.1002/fut.21881/abstract This article may be used for non-commercial purposes in accordance With Wiley Terms and Conditions for self-archiving.
Uncontrolled Keywords:
/dk/atira/pure/subjectarea/asjc/1400/1402
Subjects:
ID Code:
87719
Deposited By:
Deposited On:
18 Sep 2017 13:08
Refereed?:
Yes
Published?:
Published
Last Modified:
19 Sep 2020 04:46