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Forecasting with Option Implied Information

Author

Listed:
  • Peter Christoffersen

    (University of Toronto - Rotman School of Management and CREATES)

  • Kris Jacobs

    (University of Houston - C.T. Bauer College of Business)

  • Bo Young Chang

    (Bank of Canada)

Abstract
This chapter surveys the methods available for extracting forward-looking information from option prices. We consider volatility, skewness, kurtosis, and density forecasting. More generally, we discuss how any forecasting object which is a twice differentiable function of the future realization of the underlying risky asset price can utilize option implied information in a well-defi?ned manner. Going beyond the univariate option-implied density, we also consider results on option-implied covariance, correlation and beta forecasting as well as the use of option-implied information in cross-sectional forecasting of equity returns.

Suggested Citation

  • Peter Christoffersen & Kris Jacobs & Bo Young Chang, 2011. "Forecasting with Option Implied Information," CREATES Research Papers 2011-46, Department of Economics and Business Economics, Aarhus University.
    • Handle: RePEc:aah:create:2011-46
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    Keywords

    Volatility; skewness; kurtosis; density forecasting; risk-neutral.;
    All these keywords.

    JEL classification:

    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods

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