Mathematical and Statistical Methods for Actuarial Sciences and Finance

The relation between implied and realised volatility 223

IV. This is an interesting result and is a warning against theapriorichoice of using
call IV. The recent turmoil in financial markets caused by the current financial crisis
has determined high levels of volatility. High on the research agenda is to test the
unbiasedness and efficiency hypotheses using the most recent volatility data.

Acknowledgement.This is a revised version of Muzzioli [16]. The author wishes to thank the
two anonymous referees, and Marianna Brunetti, Mario Forni and Giuseppe Marotta for helpful
comments and suggestions. The author gratefully acknowledges financial support from MIUR.
Usual disclaimer applies.

References

1. Barone-Adesi, G., Whaley, R.: Efficient analytic approximation of American option val-
   ues. J. Finan. 6, 301–320 (1987)


2. Canina, L., Figlewski, S.: The informational content of implied volatility. Rev. Finan.
   Stud. 6, 659–681 (1993)


3. Christensen, B.J., Hansen, C.S.: New evidence on the implied-realized volatility relation.
   Eur. J. Finan. 8, 187–205 (2002)


4. Christensen, B.J., Hansen, C.S., Prabhala, N.R.: The telescoping overlap problem in op-
   tions data. Working paper, University of Aarhus and University of Maryland (2001)


5. Christensen, B.J., Prabhala, N.R.: The relation between implied and realized volatility.
   J. Finan. Econ. 50, 125–150 (1998)


6. Day, T.E., Lewis, C.M.: Stock market volatility and the informational content of stock
   index options. J. Econometrics 52, 267–287 (1992)


7. Dimson, E., Marsh P.: Volatility forecasting without data snooping. J. Bank. Finan. 29,
   399–421 (1990)


8. Ederington, L.H., Guan, W.: Is implied volatility an informationally efficient and effective
   predictor of future volatility? J. Risk 4,29–46 (2002)


9. Fleming, J.: The quality of market volatility forecasts implied by S&P100 index option
   prices. J. Emp. Finan. 5, 317–345 (1998)


10. Godbey, J.M., Mahar, J.W.: Forecasting power of implied volatility: evidence from indi-
    vidual equities. B>Quest, University of West Georgia (2007)


11. Hausman, J.: Specification tests in econometrics. Econometrica 46, 1251–1271 (1978)


12. Hentschel, L.: Errors in implied volatility estimation. J. Finan. Quant. Anal. 38,779–810
    (2003)


13. Jiang, G.J., Tian, Y.S.: Model free implied volatility and its information content. Rev.
    Finan. Stud. 4, 1305–1342 (2005)


14. Lamourex, C.G., Lastrapes, W.D.: Forecasting stock-return variance: toward an under-
    standing of stochastic implied volatilities. Rev. Finan. Stud. 6,293–326 (1993)


15. Moriggia, V., Muzzioli, S., Torricelli, C.: Call and put implied volatilities and the derivation
    of option implied trees. Front. Finan. Econ. 4, 35–64 (2007)


16. Muzzioli, S.: The relation between implied and realised volatility: are call options more
    informative than put options? Evidence from the DAX Index Options Market. CEFIN
    working paper n. 4 (2007)


17. Poon, S., Granger, C.W.: Forecasting volatility in financial markets: a review. J. Econ. Lit.
    41, 478–539 (2003)