The informational content of implied volatility |
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Authors: | Canina L; Figlewski S |
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Institution: | 1 Brown University, USA
2 New York University School of Business, 44 West 4th Street, New York, NY 10012, USA
z Corresponding author |
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Abstract: | Implied volatility is widely believed to be informationallysuperior to historical volatility, because it is the 'market's'forecast of future volatility. But for S&P 1 00 index options,the most actively traded contract in the United States, we findimplied volatility to be a poor forecast of subsequent realizedvolatility. In aggregate and across subsamples separated bymaturity and strike price, implied volatility has virtuallyno correlation with future volatility, and it does not incorporatethe information contained in recent observed volatility. |
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