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Browsing by Author "Guo, Biao"

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    Forecasting the Term Structure of Implied Volatilities
    (Te Herenga Waka—Victoria University of Wellington, 2015) Guo, Biao; Han, Qian; Lin, Hai
    Neumann and Skiadopoulos (2013) document that although the implied volatilities are predictable, their economic pro ts become insignificant once the cost is accounted for. We show that the trading strategies based on the predictability of implied volatilities could generate significant risk-adjusted returns after controlling for the transaction cost. The implied volatility curve information is useful for the out-of-sample forecast of implied volatilities up to one week. Short-maturity implied volatilities tend to be more predictable than long-maturity implied volatilities. Although the long-maturity options are much less traded than the short-maturity options, their implied volatilities provide much more information on the price discovery.