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The Economic Value of Realized Volatility: Using High-Frequency Returns for Option Valuation
Article
The economic value of realized volatility: using high-frequency returns for option valuation (2012).
The Economic Value of Realized Volatility: Using High-Frequency Returns for Option Valuation
| Content Provider | Scilit |
|---|---|
| Author | Christoffersen, Peter Feunou, Bruno Jacobs, Kris Meddahi, Nour |
| Copyright Year | 2014 |
| Description | Many studies have documented that daily realized volatility estimates based on intraday returns provide volatility forecasts that are superior to forecasts constructed from daily returns only. We investigate whether these forecasting improvements translate into economic value added. To do so, we develop a new class of affine discrete-time option valuation models that use daily returns as well as realized volatility. We derive convenient closed-form option valuation formulas, and we assess the option valuation properties using Standard & Poor’s (S&P) 500 return and option data. We find that realized volatility reduces the pricing errors of the benchmark model significantly across moneyness, maturity, and volatility levels. |
| Related Links | http://www.bankofcanada.ca/wp-content/uploads/2012/10/wp2012-34.pdf https://www.cambridge.org/core/services/aop-cambridge-core/content/view/9AD7FBD24B6E4B19BC19A86B6315BAB5/S0022109014000428a.pdf/div-class-title-the-economic-value-of-realized-volatility-using-high-frequency-returns-for-option-valuation-div.pdf |
| Ending Page | 697 |
| Page Count | 35 |
| Starting Page | 663 |
| ISSN | 00221090 |
| e-ISSN | 17566916 |
| DOI | 10.1017/s0022109014000428 |
| Journal | Journal of Financial and Quantitative Analysis |
| Issue Number | 3 |
| Volume Number | 49 |
| Language | English |
| Publisher | Cambridge University Press (CUP) |
| Publisher Date | 2014-06-01 |
| Access Restriction | Open |
| Subject Keyword | Journal of Financial and Quantitative Analysis Heteroskedasticity Realized Volatility |
| Content Type | Text |
| Resource Type | Article |
| Subject | Finance Accounting Economics and Econometrics |
