Schroeder, Gerhard (2009): Volatility Indexes seem to point to the Past.
This is the latest version of this item.
Download (255kB) | Preview
In theory, by institutional trading options (wholesale), professional market participants asses and set future volatilities that can be identified for the retail using the Black-Scholes-formula in reverse. In reality, as regression analysis suggests, it is historical market data which instead are used to determine future values. Further analysis shows that historical volatilities are insufficient predictors. Yet this questionable practice is considered by international accounting standards (IAS 39/IFRS) to allow "historical data and implied volatilities" for "reasonable estimations". In a kind of short-circuit, historical volatilities are introduced into option trading and returned as implied volatility-indexes. In reality, both differ significantly from future values. Comparing the volatility of the past nine weeks with that of the following nine weeks, estimation error ranges from four to over ten percentage points.
|Item Type:||MPRA Paper|
|Original Title:||Volatility Indexes seem to point to the Past|
|English Title:||Volatility Indexes seem to point to the Past|
|Keywords:||Volatility; Prediction; EU Accounting Standards; IAS; Correlation; GARCH; Derivatives; VDAX; VIX; S&P 500|
|Subjects:||B - History of Economic Thought, Methodology, and Heterodox Approaches > B2 - History of Economic Thought since 1925 > B23 - Econometrics ; Quantitative and Mathematical Studies
E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E44 - Financial Markets and the Macroeconomy
M - Business Administration and Business Economics ; Marketing ; Accounting ; Personnel Economics > M4 - Accounting and Auditing
|Depositing User:||Gerhard Schroeder|
|Date Deposited:||11. Sep 2010 09:57|
|Last Modified:||05. Jan 2016 04:56|
Black, Fisher / Scholes, Myron: "The Valuation of Option Contracts and a Test of Market Efficiency“, (1972) Journal of Finance, 27, S. 399-417
Black, Fisher / Scholes, Myron: „The Pricing of Options and Corporate Liabilities“, (1973) Journal of Political Economy 81 (3), S. 637-654
Engle, R. F., V.K. Ng: „Measuring and Testing the Impact of News on Volatility“ (1993) Journal of Finance 48, S. 1749-1778
Fahrmeir, Ludwig et al.: "Statistik", 3. Ed., Berlin, Heidelberg, (1997-2001)
Hull, J. C.: „Options, Futures and Other Derivates“, 3rd edition, Prentice Hall, (1997)
Pape, Ulrich / Merk, Andreas: "Zur Angemessenheit von Optionspreisen - Ergebnisse einer empirischen Überprüfung des Black/Scholes-Modells" ESCP-EAP-Workingpaper, (2003), P. 8 and 14 ff.
The IASC Foundation in Delaware and London maintains © of all IAS and IFRS publications including the ones confirmed as mandatory EU-Accounting Standards. Pls contact the IASB in London.
There are well documented Nobel Prize pages covering B&S and GARCH in the Web.
Historical Critics regarding the "B&S"-Formula (by years - a selection)
Galai, D.: „A Survey of Empirical Tests of Option-Pricing-Models“ in Brenner, S. Menachem (Hrsg.): "Option Pricing“ (1983)
Geyer Geske, R, W. Touros (1991): „Skewness, Kurtosis and Black-Scholes Mispricing“ In: Statistical Papers, Vol. 32, S. 299-309
Anderson, Alois L. J.: ZfB 91/1 (43.Jg.) S. 65-74: „Is the random walk dead“ Chapter 2 „Failure of the Gaussian Hypothesis"
Available Versions of this Item
Volatility Indexes seem to point to the Past. (deposited 20. Oct 2009 19:37)
Volatility Indexes seem to point to the Past. (deposited 05. Nov 2009 16:25)
- Volatility Indexes seem to point to the Past. (deposited 11. Sep 2010 09:57) [Currently Displayed]
- Volatility Indexes seem to point to the Past. (deposited 05. Nov 2009 16:25)