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IMPLIED VOLATILITY AS A PREDICTOR OF REALIZED VOLATILITY
Uppsala University, Disciplinary Domain of Humanities and Social Sciences, Faculty of Social Sciences, Department of Economics.
Uppsala University, Disciplinary Domain of Humanities and Social Sciences, Faculty of Social Sciences, Department of Economics.
2013 (English)Independent thesis Basic level (degree of Bachelor), 10 credits / 15 HE creditsStudent thesis
Abstract [en]

The aim of this paper is to test if implied volatility is a better predictor of realized volatility than past volatility. This has been investigated using an ordinary least square regression on S&P 100, OMX S30 and FTSE 100. The model is then altered into an instrumental variable model to better account for autocorrelation and finally into a GARCH model. The authors can conclude that implied volatility is a better predictor of realized volatility than past volatility. Implied volatility is however not a perfect predictor since several of the assumptions of the Black & Scholes option-pricing model are not met.

Place, publisher, year, edition, pages
2013.
Keyword [en]
implied, volatility, options, predictor, OMX S30, GARCH, Black, Scholes
National Category
Economics
Identifiers
URN: urn:nbn:se:uu:diva-197864OAI: oai:DiVA.org:uu-197864DiVA: diva2:614539
Uppsok
Social and Behavioural Science, Law
Supervisors
Examiners
Available from: 2013-04-05 Created: 2013-04-05 Last updated: 2013-04-05Bibliographically approved

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CiteExportLink to record
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Citation style
  • apa
  • ieee
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Language
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