The relation between implied and realised volatility: are call options more informative than put options? Evidence from the DAX index options market [article]

S. Muzzioli
The aim of this paper is to investigate the relation between implied volatility, historical volatility and realised volatility in the Dax index options market. Since implied volatility varies across option type (call versus put) we run a horse race of different implied volatility estimates: implied call, implied put and average implied that is a weighted average of call and put implied volatility with weights proportional to traded volume. Two hypotheses are tested in the Dax index options
more » ... index options market: unbiasedness and efficiency of the different volatility forecasts. Our results suggest that all the three implied volatility forecasts are unbiased (after a constant adjustment) and efficient forecasts of future realised volatility in that they subsume all the information contained in historical volatility. Volatility is a key variable in option pricing models and risk management techniques and has drawn the attention of many theoretical and empirical studies aimed at assessing the best way in order to forecast it. Among the various models proposed in the literature in order to forecast volatility, we distinguish between option based volatility forecasts that use prices of traded options in order to unlock volatility expectations and time series volatility models that use historical information in order to predict future volatility (following Poon and Granger (2003) , in
doi:10.25431/11380_605333 fatcat:m6ml6nl6enambjdbyabs6cuxva