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Are implied volatility levels suitable for forecasting?: A study comparing the performance of volatility implied by options and covered warrants with the performance of ARCH forecasts.
Umeå University, Faculty of Social Sciences, Umeå School of Business and Economics (USBE), Economics.
2016 (English)Independent thesis Advanced level (degree of Master (One Year)), 10 credits / 15 HE creditsStudent thesis
Abstract [en]

This study examines which of the implied volatilities from options and covered warrants with exactly the same terms and cash flows that deviates least from the subsequent week’s realized volatility levels. Their suitability as methods for forecasting is also examined by comparing their predictive abilities with the forecasts of ARCH models. The study was performed on options and covered warrants traded in Sweden between February and May 2016. The results indicate that volatility levels implied by covered warrants generally overestimates realized volatility and that neither instrument outperforms the forecasts of ARCH models.

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URN: urn:nbn:se:umu:diva-124786OAI: diva2:955167
Available from: 2016-08-24 Created: 2016-08-24

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