Implied Volatility as a Predictor: the Case of the IBEX-35 Future Contract

In this paper we analyse if the implied volatility (IMV) is an unbiased predictor for the realised volatility (REV) of the underlying asset (future contracts). For this aim we use the daily data from Ibex?35 future option market (years 2000 to 2003). From the option prices we obtain a series of dail...

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Bibliographic Details
Published in:Estudios de economía aplicada 2005-04, Vol.23 (1), p.67
Main Authors: CABEDO, J D, MOYA CLEMENTE, I
Format: Article
Language:English
Subjects:
Futures market
Hypotheses
Options markets
Securities prices
Stochastic models
Volatility
Online Access:Get full text
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Summary:In this paper we analyse if the implied volatility (IMV) is an unbiased predictor for the realised volatility (REV) of the underlying asset (future contracts). For this aim we use the daily data from Ibex?35 future option market (years 2000 to 2003). From the option prices we obtain a series of daily IMV. Furthermore, we obtain two additional series, one for historical and another for realised volatility, from the daily quotes of Ibex?35 future contracts. By using these data, we contrast three hypotheses regarding the forecasting power of IMV on REV: IMV is an unbiased estimate of the future REV; IMV has more explanatory power than the historical volatility (HIV) when forecasting future REV; and HIV does not provide more information on REV than that provided by IMV. Finally we test these hypotheses by using, as historical volatility, the estimation provided by a GARCH model. Our results indicate that, when forecasting, historical volatility does not provide additional information to that provided by implied volatility. However, IMV tends to overestimate realised volatility values.
ISSN:1133-3197
1697-5731