INFORMATION CONTENT OF IMPLIED VOLATILITY, SKEWNESS AND KURTOSIS
Kuosmanen, Samu (2006)
Kuvaus
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Tiivistelmä
The purpose of this study is to investigate whether option price implied volatility, skewness and kurtosis are good estimates of realized return distribution. Earlier studies suggest that implied moments, i.e. volatility, skewness and kurtosis, of the distribution do contain some information about future price behavior, but the information is usually biased and exaggerates the importance of past market shocks.
This study employs method introduced by Corrado & Su to obtain estimates of implied volatility, skewness and kurtosis. The data consists of daily close values of DAX index for years 1999-2001. Furthermore, regression analysis is used to compare the information content of implied and history-based estimates to see if implied estimates contain some additional information about future price behavior.
The overall results indicate that implied volatility, skewness and kurtosis do contain some information about the future volatility, skewness and kurtosis, but as the prediction power of these models used in this study is so low, it is difficult to implement this information on predicting the future.
This study employs method introduced by Corrado & Su to obtain estimates of implied volatility, skewness and kurtosis. The data consists of daily close values of DAX index for years 1999-2001. Furthermore, regression analysis is used to compare the information content of implied and history-based estimates to see if implied estimates contain some additional information about future price behavior.
The overall results indicate that implied volatility, skewness and kurtosis do contain some information about the future volatility, skewness and kurtosis, but as the prediction power of these models used in this study is so low, it is difficult to implement this information on predicting the future.
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