Many past literatures have examined the predictive power of implied volatility versus that of historical volatility, but they have showed divergent conclusions. One of the major differences among these studies is the methods that they used to obtain implied volatility. The VIX index, introduced in 1993, provides a model-free and directly observable source of implied volatility data. The VIX futures is an actively traded VIX derivative product, and its prices are believed to contain market’s expectation about future volatility. By analyzing the relationship between the VIX futures prices and the realized volatilities of the 30-day period that these VIX futures contracts cover, this paper finds that the VIX futures contracts with shorter maturities have predictive power on future realized volatility, but they are upwardly biased estimates. The predictive power, however, decreases as the time to maturity increases. The outstanding VIX futures contracts with the nearest expiration dates outperform GARCH estimates based on historical return data at predicting future realized volatility.
| Identifer | oai:union.ndltd.org:CLAREMONT/oai:scholarship.claremont.edu:cmc_theses-3271 |
| Date | 01 January 2019 |
| Creators | Zhang, Siran |
| Publisher | Scholarship @ Claremont |
| Source Sets | Claremont Colleges |
| Detected Language | English |
| Type | text |
| Format | application/pdf |
| Source | CMC Senior Theses |
| Rights | ©2019SiranZhang, default |
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