Currency option pricing and realized volatility

Manzur, Meher and Hoque, Ariful and Poitras, Geoffrey (2010) Currency option pricing and realized volatility. Banking and Finance Review, 2 (1). pp. 73-86. ISSN 1947-7945


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.

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Item Type: Article (Commonwealth Reporting Category C)
Refereed: Yes
Item Status: Live Archive
Additional Information: Permanent restricted access to paper due to publisher's copyright restrictions.
Faculty / Department / School: Historic - Faculty of Business - School of Accounting, Economics and Finance
Date Deposited: 19 Oct 2010 10:27
Last Modified: 03 Jul 2013 00:03
Uncontrolled Keywords: European options; implied volatility; realized volatility; exchange-traded; synchronicity
Fields of Research : 15 Commerce, Management, Tourism and Services > 1502 Banking, Finance and Investment > 150201 Finance
Socio-Economic Objective: B Economic Development > 90 Commercial Services and Tourism > 9001 Financial Services > 900101 Finance Services

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