The Informational Content and Predictive Ability of Implied Volatilities in the Foreign Exchange Options Market PDF Download
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Author: Niall Coffey
Publisher:
ISBN:
Category : Foreign exchange options
Languages : en
Pages : 0
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Book Description
Author: Niall Coffey
Publisher:
ISBN:
Category : Foreign exchange options
Languages : en
Pages : 0
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Book Description
Author: Jorge A. Chan-Lau
Publisher:
ISBN:
Category : Currency question
Languages : en
Pages : 34
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Book Description
Author: Vicentiu Covrig
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Book Description
Previous studies of the quality of market forecasted future volatility in currency options use implied volatilities from exchange-traded currency options markets, and find that though implied volatility has substantial informational content, it is a biased predictor of future volatility. However, such empirical results are likely to be affected by two sources of well-documented errors: measurement errors in model inputs and errors in the option pricing model that is used for computation.This paper focuses on the former source of errors, and differs from previous studies in that it uses quoted implied volatility data from the OTC currency option market. The institutional features of the OTC market alleviate the measurement problems that are found in studies which use implied volatility that is derived from exchange-traded option prices. Unlike exchange traded currency option markets, in which market players quote option prices in terms of option premiums, in the OTC currency option market the price quotes are actually made in terms of volatility, which is expressed as a percentage per annum. Furthermore, the OTC currency options have daily quotes for standard maturities, allowing us to study the market's ability to forecast future volatility for different time horizons.The evidence shows that quoted implied volatility is an unbiased estimator of future volatility at the one-month horizon, but its predictive power decreases with longer horizons. The results are consistent with the Figlewski (1997) hypothesis that the informational content of quoted implied volatility is positively related to liquidity. The results also indicate that the quoted implied volatility has more predictive power than the historical standard deviation, RiskMetrics, and GARCH-based volatility forecasts across all of the currency pairs and forecasting horizons.These results are consistent with the argument that measurement errors have a substantial effect on the implied volatility estimator and the quality of the inferences that are based on it.
Author: Philippe Jorion
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Book Description
Measures of volatility implied in option prices are widely believed to be the best available volatility forecasts. In this paper, we examine the information content and predictive power of Implied Standard Deviations (ISD's) derived from CME options on foreign currency futures. The paper finds that statistical time- series models, even when given the advantage of quot;ex postquot; parameter estimates, are outperformed by ISD's. ISD's, however, also appear to be biased volatility forecasts. Using simulations to investigate the robustness of these results, the paper finds that measurement errors and statistical problems can substantially distort inferences. Even accounting for these, however, ISD's appear to be too variable relative to future volatility.
Author: Iain J. Clark
Publisher: John Wiley & Sons
ISBN: 1119978602
Category : Business & Economics
Languages : en
Pages : 308
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Book Description
This book covers foreign exchange options from the point of view of the finance practitioner. It contains everything a quant or trader working in a bank or hedge fund would need to know about the mathematics of foreign exchange—not just the theoretical mathematics covered in other books but also comprehensive coverage of implementation, pricing and calibration. With content developed with input from traders and with examples using real-world data, this book introduces many of the more commonly requested products from FX options trading desks, together with the models that capture the risk characteristics necessary to price these products accurately. Crucially, this book describes the numerical methods required for calibration of these models – an area often neglected in the literature, which is nevertheless of paramount importance in practice. Thorough treatment is given in one unified text to the following features: Correct market conventions for FX volatility surface construction Adjustment for settlement and delayed delivery of options Pricing of vanillas and barrier options under the volatility smile Barrier bending for limiting barrier discontinuity risk near expiry Industry strength partial differential equations in one and several spatial variables using finite differences on nonuniform grids Fourier transform methods for pricing European options using characteristic functions Stochastic and local volatility models, and a mixed stochastic/local volatility model Three-factor long-dated FX model Numerical calibration techniques for all the models in this work The augmented state variable approach for pricing strongly path-dependent options using either partial differential equations or Monte Carlo simulation Connecting mathematically rigorous theory with practice, this is the essential guide to foreign exchange options in the context of the real financial marketplace.
Author: José Campa
Publisher:
ISBN:
Category : Foreign exchange futures
Languages : en
Pages : 48
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Book Description
This paper evaluates the forecasting accuracy of correlation derived from implied volatilities in dollar-mark, dollar-yen, and mark-yen options from January 1989 to May 1995. As a forecast of realized correlation between the dollar-mark and dollar-yen, implied correlation is compared against three alternative forecasts based on time series data: historical correlation, RiskMetrics' exponentially weighted moving average correlation, and correlation estimated using a bivariate GARCH (1,1) model. At the one-month and three-month forecast horizons, we find that implied correlation outperforms, often significantly, these alternative forecasts. In combinations, implied correlation always incrementally improves the performance of other forecasts, but not the converse; in certain cases historically based forecasts contribute no incremental information to implied forecasts. The superiority of the implied correlation forecast holds even when forecast errors are weighted by realized variances, reflecting correlation's contribution to the dollar variance of a multicurrency portfolio.
Author: John Leo Saranchuk
Publisher:
ISBN:
Category : Financial futures
Languages : en
Pages : 144
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Book Description
Author: Jessica James
Publisher: John Wiley & Sons
ISBN: 1118793277
Category : Business & Economics
Languages : en
Pages : 264
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Book Description
Get the little known – yet crucial – facts about FX options Daily turnover in FX options is an estimated U.S. $ 207 billion, but many fundamental facts about this huge and liquid market are generally unknown. FX Option Performance provides the information practitioners need to be more effective in the market, with detailed, specific guidance. This book is a unique and practical guide to option trading, with the courage to report how much these contracts have really made or lost. Breaking free from the typical focus on theories and generalities, this book gets specific – travelling back in history to show exactly how options performed in different markets and thereby helping investors and hedgers alike make more informed decisions. Not overly technical, the rigorous approach remains accessible to anyone with an interest in the area, showing investors where to look for value and helping corporations hedge their FX exposures. FX Option Performance begins with a quick and practical introduction to the FX option market, then provides specific advice toward structures, performance, rate fluctuation, and trading strategies. Examine the historical payoffs to the most popular and liquidly traded options Learn which options are overvalued and which are undervalued Discover surprising, generally unpublished facts about emerging markets Examine systemic option trading strategies to find what works and what doesn't On average, do options result in profit, loss, or breaking even? How can corporations more cost-effectively hedge their exposure to emerging markets? Are cheap out-of-the-money options worth it?
Author: Stephen Satchell
Publisher: Elsevier
ISBN: 0080471420
Category : Business & Economics
Languages : en
Pages : 428
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Book Description
Forecasting Volatility in the Financial Markets, Third Edition assumes that the reader has a firm grounding in the key principles and methods of understanding volatility measurement and builds on that knowledge to detail cutting-edge modelling and forecasting techniques. It provides a survey of ways to measure risk and define the different models of volatility and return. Editors John Knight and Stephen Satchell have brought together an impressive array of contributors who present research from their area of specialization related to volatility forecasting. Readers with an understanding of volatility measures and risk management strategies will benefit from this collection of up-to-date chapters on the latest techniques in forecasting volatility. Chapters new to this third edition:* What good is a volatility model? Engle and Patton* Applications for portfolio variety Dan diBartolomeo* A comparison of the properties of realized variance for the FTSE 100 and FTSE 250 equity indices Rob Cornish* Volatility modeling and forecasting in finance Xiao and Aydemir* An investigation of the relative performance of GARCH models versus simple rules in forecasting volatility Thomas A. Silvey Leading thinkers present newest research on volatility forecasting International authors cover a broad array of subjects related to volatility forecasting Assumes basic knowledge of volatility, financial mathematics, and modelling
Author: Thi Le
Publisher: Springer Nature
ISBN: 3030712427
Category : Business & Economics
Languages : en
Pages : 350
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Book Description
This book focuses on the impact of high-frequency data in forecasting market volatility and options price. New technologies have created opportunities to obtain better, faster, and more efficient datasets to explore financial market phenomena at the most acceptable data levels. It provides reliable intraday data supporting financial investment decisions across different assets classes and instruments consisting of commodities, derivatives, equities, fixed income and foreign exchange. This book emphasises four key areas, (1) estimating intraday implied volatility using ultra-high frequency (5-minutes frequency) currency options to capture traders' trading behaviour, (2) computing realised volatility based on 5-minute frequency currency price to obtain speculators' speculation attitude, (3) examining the ability of implied volatility to subsume market information through forecasting realised volatility and (4) evaluating the predictive power of implied volatility for pricing currency options. This is a must-read for academics and professionals who want to improve their skills and outcomes in trading options.
