Volatility forecast plays a central role in the financial decision making process. An intrinsic purpose of any investor is profit earning. For that purpose investors need to estimate the risk. One of the most efficient methods to this end is the volatility estimation. In this theses I compare the CBOE Volatility Index, (VIX) with the actual volatility on an index at the Nordic Market. The actual volatility is defined as the one-day-ahead prediction as calculated by using the GARCH(1,1) model. By using the VIX model I performed consecutive predictions 30 days ahead between February the 2nd, 2007 to March the 6th, 2007. These predictions were compared with the GARCH(1,1) one-day-ahead predictions for the same period. To my knowledge, such comparisons have not been performed earlier on the Nordic Market. The conclusion of the study was that the VIX predictions tends to higher values then the GARCH(1,1) predictions except for large prices upward jumps, which indicates that the VIX is not able to predict future shocks. Except from these jumps, the VIX more often shows larger value than the GARCH(1,1). This is interpreted as an uncertainly of the prediction. However, the VIX predictions follows the actual volatility reasonable well. I conclude that the VIX estimation can be used as a reliable estimator of market volatility.
| Identifer | oai:union.ndltd.org:UPSALLA1/oai:DiVA.org:hh-1635 |
| Date | January 2007 |
| Creators | Kozyreva, Maria |
| Publisher | Högskolan i Halmstad, Sektionen för Informationsvetenskap, Data– och Elektroteknik (IDE), Högskolan i Halmstad/Sektionen för Informationsvetenskap, Data- och Elektroteknik (IDE) |
| Source Sets | DiVA Archive at Upsalla University |
| Language | English |
| Detected Language | English |
| Type | Student thesis, info:eu-repo/semantics/bachelorThesis, text |
| Format | application/pdf |
| Rights | info:eu-repo/semantics/openAccess |
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