The Information Content of Canadian Implied Volatility Indexes

Download or read book The Information Content of Canadian Implied Volatility Indexes written by Chunrong Wang and published by LAP Lambert Academic Publishing. This book was released on 2012-08 with total page 88 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book compares the efficacy of Black-Scholes implied volatility with model-free implied volatility in providing volatility forecasts in the framework of Canadian S&P/TSX 60 stock index option. In-sample volatility forecasts show that both MVX and VIXC significantly improve the fit of a GJR-GARCH(1,1) model. However, VIXC dominates MVX for predicting future volatility. Out-of-sample volatility forecasts also indicate that VIXC outperforms MVX for the 1-, 5-, 10-, and 22-day forecasting horizons. we also investigate the predictive power between VIXC and alternative volatility forecasts derived from historical index prices.We find that for time horizons lesser than 10-trading days, VIXC provides more accurate forecasts. However, for longer time horizons, the historical volatilities, particularly the random walk, provide better forecasts.