Forecasting foreign exchange volatility
Subtitle: why is implied volatility biased and inefficient, and does it matter?
By: Christopher J. Neely.
Contributors: Federal Reserve Bank of St. Louis.
Series: Working paper ;; 2002-017D; Working paper (Federal Reserve Bank of St. Louis : Online) ;; 2002-017D.
Publisher: Federal Reserve Bank of St. Louis
Published: 2002
Place of publication: [St. Louis, Mo.]
Language: eng
Format: Electronic resource
Subjects: Foreign exchange rates -- Forecasting -- Econometric models.
Description: "Research has consistently found that implied volatility is a conditionally biased predictor of realized volatility across asset markets.  This paper evaluates explanations for this bias in the market for options on foreign exchange futures.  No solution considered--including a model of priced volatility risk--explains the conditional bias found in implied volatility.  Further, while implied volatility fails to subsume econometric forecasts in encompassing regressions, these forecasts do not significantly improve delta-hedging performance.  Thus this paper deepens the implied volatility puzzle by rejecting popular explanations for forecast bias while demonstrating that statistical measures of bias and informational inefficiency should be treated with circumspection"--Federal Reserve Bank of St. Louis web site.
Notes: Also available in print.
Includes bibliographical references.
Title from PDF file as viewed on 1/28/2005.
System requirements: Adobe Acrobat Reader.
Mode of access: World Wide Web.