A Comparison of Forecasting Volatility Strategies into ARCH Class through Option Pricing

Freo, Marzia (2003) A Comparison of Forecasting Volatility Strategies into ARCH Class through Option Pricing. Bologna, IT: Dipartimento di Scienze Statistiche "Paolo Fortunati", Università degli Studi di Bologna, p. 19. DOI 10.6092/unibo/amsacta/2287. In: Quaderni di Dipartimento. Serie Ricerche ISSN 1973-9346.
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Daily data on the German market index return are used to consider multiple issues in a forecasting comparison of ARCH-type specifications. first, attention is paid to the impact of different sample sizez, different horizons and fitting of historical versus implied data. Secondly, the issue of volatility transmission is addressed by modelling French and Germany market indexes into simultaneous conditionally heteroskedasticity framework. Errors obtained by updating the Black and Scholes formula with the different volatility forecasts are compared. The findings support, if no implied volatility is available, the use of the simplest GARCH specification estimated on short recent sample.

Document type
Monograph (Working Paper)
Freo, Marzia
Deposit date
08 Jan 2007
Last modified
16 May 2011 12:05

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