Index option implied volatility: prediction power and bias.
Independent thesis Basic level (degree of Bachelor), 10 credits / 15 HE creditsStudent thesis
In this thesis, the prediction power of index option implied volatility on realized volatility is analysed for the period surrounding the subprime crisis: starting in April 2006 and ending in February 2015. Our findings for the entire sample period are that implied volatility predicts realized volatility, however with bias. We are not able to statistically draw any conclusions regarding the nature of this bias.
In our sub-period analysis, we find that implied volatility in the bull period preceding the subprime crisis (bear period), is a biased predictor of realized volatility. However, again, e cannot determine whether this bias is over- or underestimating. In the bear period, realized volatility is being predicted in an unbiased fashion. From the succeeding second bull period, we obtain that implied volatility is an overestimating predictor of realized volatility.
Place, publisher, year, edition, pages
Implied volatility, prediction power, option, subprime crisis
IdentifiersURN: urn:nbn:se:uu:diva-255475OAI: oai:DiVA.org:uu-255475DiVA: diva2:822260
Forsberg, Lars, Universitetslektor
Guvå, Tomas, Universitetslektor