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Why nobody predicts impiled volatility ?
Hi all,I've been going through academic litterature looking for articles that deal with predicting implied volatility and found none. Most of the articles answer questions of the type:-is implied a good predictor of future vol-relationship btw implied and realized.why is nobody interested in predecting implied ? nonsense ? what am I missing here?Can you point me to some articles. Thx.RegardsN.A.
Why nobody predicts impiled volatility ?
You didn't try very hard :-)The second link in http://www.google.com/search?q=implied+ ... prediction seems relevant, so I wouldn't say there is none:Modeling and Forecasting Implied Volatility an Econometric Analysis of the VIX Index http://ethesis.helsinki.fi/julkaisut/ eri/hecer/disc/129/modeling.pdf
Why nobody predicts impiled volatility ?
Hello,Should we think implied vol. is obtained such that the market price of option matches those from BS, this is just a way to make BS being (and assumed to be) valid in the current market. So it seems not much value to make prediction? Also, imp vol is a function of strike/moneyness, shouldn't predicting vol. of asset more relevant?Thanks.
Why nobody predicts impiled volatility ?
Hi Namanh,I agree with Carlitos, you didn't try very hard.Anyway, some models exist for modelling dynamic of implied volatility surface. See for example Schönbucher, Brace et al and Schweizer & Wissel.Moreover, if you know the implied volatility dynamic, you can find the dynamic of the spot volatility by using Itô-Wentzell formula.Amb
Why nobody predicts impiled volatility ?
Ideally you would model implied volatility and actual volatility separately, and then look for arbitrage opportunities. P
Why nobody predicts impiled volatility ?
I had always thought that there was actual which was a historic measure and implied which was a future measure - hence you could not arb between them?
Why nobody predicts impiled volatility ?
rmax, actual vol means how much noise is in the stock price at any time. You can predict this going forward (you may not be right though!). So if 1 month imp vol is now 20%, and you think vol will average 30% over the next month then you can make money by buying and hedging the option. But, yes, typically you would use historical vol in your forecast going forward.P
Why nobody predicts impiled volatility ?
If one is to trade options exclusively, i.e.no delta or gamma hedging using the underlying, and exits the position before expiration, then implied is far more important than historical. He'll be fine even if he bought an expensive IV as long as there's a 'greater fool' who would buy the option from him.Thanks Carlitos, the article is very helpful !
Why nobody predicts impiled volatility ?
namanh, have you done the maths on that?! Four things will matter in your scenario: IV when bought, IV when sold, and what happens to the underlying in the meantime, that's actual volatility, and also since you aren't hedging, the asset direction. Are you also modelliing asset direction as well then?!P
Why nobody predicts impiled volatility ?
Paul, I wans't clear enough. If a strategy is delta, gamma neutral, but vega positive, e.g. a simple straddle, then IV matters a lot. Granted, there's a correlation between the asset price and IV, and because of DDelta, DGamma one has to model the actual vol as well. I was just wondering why there are far fewer articles dealing with modeling the aggregate implied ( or I just didn't try very hard 