Currency option pricing and realized volatility
Manzur, M., Hoque, A.ORCID: 0000-0001-8369-6653 and Poitras, G.
(2010)
Currency option pricing and realized volatility.
The Banking and Finance Review, 2
(1).
pp. 73-86.
Abstract
Volatility is a key parameter in currency option pricing. This paper examines alternative specifications of the volatility input to the Black-Scholes option pricing procedure. The focus is the relative performance of implied, realized, and GARCH-based models as predictors of market volatility to forecast currency options prices. 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.
Item Type: | Journal Article |
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Murdoch Affiliation(s): | Murdoch Business School |
Publisher: | School of Business Central Connecticut State University |
URI: | http://researchrepository.murdoch.edu.au/id/eprint/39342 |
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