The Information Content of Canadian Implied Volatility Indexes

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.

Autorentext

Chunrong Wang is a Ph.D. in Business Administration, Finance option at the John Molson School of Business, Concordia. He obtained his Master of Science and Master of Accountancy degree at Brock University in 2011.

Klappentext

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.