Currency option pricing and realised volatility
Volatility is a key parameter in currency option pricing. This paper examines alternative specifications ofthe volatility input to the Black-Scholes option pricing procedure. The focus is the relative performance ofimplied, realized, and GARCH-based models as predictors of market volatility to forec...
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| Format: | Journal Article |
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Central Connecticut State University, Department of Finance
2010
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| Online Access: | http://hdl.handle.net/20.500.11937/35929 |
| _version_ | 1848754628879974400 |
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| author | Manzur, Meher Hoque, A. Poitras, G. |
| author_facet | Manzur, Meher Hoque, A. Poitras, G. |
| author_sort | Manzur, Meher |
| building | Curtin Institutional Repository |
| collection | Online Access |
| description | Volatility is a key parameter in currency option pricing. This paper examines alternative specifications ofthe volatility input to the Black-Scholes option pricing procedure. The focus is the relative performance ofimplied, realized, and GARCH-based models as predictors of market volatility to forecast currency optionsprices. Using exchange-traded, daily and intra-daily data for three major European currencies, the results indicate that the realized volatility model tends to outperform the other two specifications, both in-sample and out-of-sample. This result is intuitively appealing and expected to facilitate resolution of other problems in risk management applications. |
| first_indexed | 2025-11-14T08:43:26Z |
| format | Journal Article |
| id | curtin-20.500.11937-35929 |
| institution | Curtin University Malaysia |
| institution_category | Local University |
| last_indexed | 2025-11-14T08:43:26Z |
| publishDate | 2010 |
| publisher | Central Connecticut State University, Department of Finance |
| recordtype | eprints |
| repository_type | Digital Repository |
| spelling | curtin-20.500.11937-359292017-01-30T13:52:34Z Currency option pricing and realised volatility Manzur, Meher Hoque, A. Poitras, G. European options Synchronicity Realized volatility Exchange-traded Implied volatility Volatility is a key parameter in currency option pricing. This paper examines alternative specifications ofthe volatility input to the Black-Scholes option pricing procedure. The focus is the relative performance ofimplied, realized, and GARCH-based models as predictors of market volatility to forecast currency optionsprices. Using exchange-traded, daily and intra-daily data for three major European currencies, the results indicate that the realized volatility model tends to outperform the other two specifications, both in-sample and out-of-sample. This result is intuitively appealing and expected to facilitate resolution of other problems in risk management applications. 2010 Journal Article http://hdl.handle.net/20.500.11937/35929 Central Connecticut State University, Department of Finance fulltext |
| spellingShingle | European options Synchronicity Realized volatility Exchange-traded Implied volatility Manzur, Meher Hoque, A. Poitras, G. Currency option pricing and realised volatility |
| title | Currency option pricing and realised volatility |
| title_full | Currency option pricing and realised volatility |
| title_fullStr | Currency option pricing and realised volatility |
| title_full_unstemmed | Currency option pricing and realised volatility |
| title_short | Currency option pricing and realised volatility |
| title_sort | currency option pricing and realised volatility |
| topic | European options Synchronicity Realized volatility Exchange-traded Implied volatility |
| url | http://hdl.handle.net/20.500.11937/35929 |