Using implied volatility to measure uncertainty about interest rates

Federal Reserve Bank of St. Louis Review

Volumn 87, Issue 3, 2005, Pages 407-425

  Neely, Christopher J ^a  

^a FEDERAL RESERVE BANK OF ST LOUIS   (United States)

Author keywords

[No Author keywords available]

Indexed keywords

EID: 33646385133     PISSN: 00149187     EISSN: None     Source Type: Journal    
DOI: 10.20955/r.87.407-426     Document Type: Article

References (48)

1. Ang, Andrew; Hodrick, Robert J.; Xing, Yuhang and Zhang, Xiaoyan. "The Cross-Section of Volatility and Expected Returns." Unpublished manuscript, Columbia University, 2003.
2. Barone-Adesi, Giovanni and Whaley, Robert E. "Efficient Analytic Approximation of American Option Values." Journal of Finance, 1987, 42, pp. 301-20.
3. Bates, David S. "Testing Option Pricing Models," in G.S. Maddala and C.R. Rao, eds., Statistical Methods in Finance/Handbook of Statistics. Volume 14. Amsterdam: Elsevier Publishing, 1996.
4. Bates, David S. "Post-'87 Crash Fears in the S&P 500 Futures Option Market." Journal of Econometrics, 2000, 94, pp. 181-238.
5. Bates, David S. "Empirical Option Pricing: A Retrospection." Journal of Econometrics, 2003, 116, pp. 387-404.
6. Beckers, Stan. "Standard Deviations Implied in Options Prices as Predictors of Futures Stock Price Variability." Journal of Banking and Finance, 1981, 5, pp. 363-81.
7. Benzoni, Luca. "Pricing Options Under Stochastic Volatility: An Empirical Investigation." Unpublished manuscript, Carlson School of Management, 2002.
8. Black, Fischer. "The Pricing of Commodity Contracts." Journal of Financial Economics, 1976, 3, pp. 167-79.
9. Black, Fischer and Scholes, Myron. "The Valuation of Option Contracts and a Test of Market Efficiency." Journal of Finance, 1972, 27, pp. 399-417.
10. Blair, Bevan J.; Poon, Ser-Huang and Taylor, Stephen J. "Forecasting S&P 100 Volatility: The Incremental Information Content of Implied Volatilities and High-Frequency Index Returns." Journal of Econometrics, 2001, 105, pp. 5-26.
11. Bollerslev, Tim and Zhou, Hao. "Volatility Puzzles: A Unified Framework for Gauging Return-Volatility Regressions." Finance and Economics Discussion Series 2003-40, Board of Governors of the Federal Reserve System, 2003.
12. Boyle, Phelim and Boyle, Feidhlim. Derivatives: The Tools that Changed Finance. London: Risk Books, 2001.
13. Campbell, John Y. "Intertemporal Asset Pricing without Consumption Data." American Economic Review, 1993, 83, pp. 487-512.
14. Canina, Linda and Figlewski, Stephen. "The Informational Content of Implied Volatility." Review of Financial Studies, 1993, 6, pp. 659-81.
15. Carlson, John B.; Melick, William R. and Sahinoz Erkin Y. "An Option for Anticipating Fed Action." Federal Reserve Bank of Cleveland Economic Commentary, September 1, 2003, pp. 1-4.
16. Chernov, Mikhail. "On the Role of Volatility Risk Premia in Implied Volatilities Based Forecasting Regressions." Unpublished manuscript, Columbia University, 2002.
17. Christensen, B.J. and Prabhala, N.R. "The Relation Between Implied and Realized Volatility." Journal of Financial Economics, 1998, 50, pp. 125-50.
18. Dubofsky, David A. and Miller Jr, Thomas M. Derivatives: Valuation and Risk Management. New York: Oxford University Press, 2003.
19. Fleming, Jeff. "The Quality of Market Volatility Forecasts Implied by S&P 100 Index Option Prices. "Journal of Empirical Finance, 1998, 5, pp. 317-45.
20. Heston, Steven L. "A Closed-Form Solution for Options with Stochastic Volatility with Applications to Bond and Currency Options." Review of Financial Studies, 1993, 6, pp. 327-43.
21. Hull, John C. Options, Futures, and Other Derivatives. 5th edition. Upper Saddle River, NJ: Prentice Hall, 2002.
22. Hull, John C. and White, Alan. "The Pricing of Options on Assets with Stochastic Volatilities." Journal of Finance, 1987, 42, pp. 281-300.
23. Jarrow, Robert and Turnbull, Stuart. Derivative Securities. Cincinnati, OH: South-Western College Publishing, 2000.
24. Johnston, E.; Kracaw, W. and McConnell, J. "Day-of-the-Week Effects in Financial Futures: An Analysis of GNMA, T-Bond, T-Note, and T-Bill Contracts." Journal of Financial and Quantitative Analysis, 1991, 26, pp. 23-44.
25. Jorion, Philippe. "Predicting Volatility in the Foreign Exchange Market." Journal of Finance, 1995, 50, pp. 507-28.
26. Kroner, Kenneth F.; Kneafsey, Kevin P. and Claessens, Stijn. "Forecasting Volatility in Commodity Markets." Working Paper 93-3, University of Arizona, 1993.
27. Krueger, Joel T. and Kuttner, Kenneth N. "The Fed Funds Futures Rate as a Predictor of Federal Reserve Policy," Working Paper WP-95-4, Federal Reserve Bank of Chicago, March 1995.
28. Lamoureux, Christopher G. and Lastrapes, William D. "Forecasting Stock-Return Variance: Toward an Understanding of Stochastic Implied Volatilities." Review of Financial Studies, 1993, 6, pp. 293-326.
29. Latane, Henry A. and Rendleman, Richard J. Jr. "Standard Deviations of Stock Price Ratios Implied in Option Prices." Journal of Finance, 1976, 31, pp. 369-81.
30. Li, Kai. "Long-Memory versus Option-Implied Volatility Prediction." Journal of Derivatives, 2002, 9, pp. 9-25.
31. Martens, Martin and Zein, Jason. "Predicting Financial Volatility: High-Frequency Time-Series Forecasts vis-à-vis Implied Volatility." Journal of Futures Markets, 2004, 24(11), pp. 1005-28.
32. Merton, Robert C. "An Intertemporal Capital Asset Pricing Model." Econometrica, 1973a, 41, pp. 867-87.
33. Merton, Robert C. "Theory of Rational Option Pricing." Bell Journal of Economics, 1973b, 4(1), pp. 141-83.
34. Neely, Christopher J. "Realignments of Target Zone Exchange Rate Systems: What Do We Know?" Federal Reserve Bank of St. Louis Review, September/October 1994, 76(5), pp. 23-34.
35. Neely, Christopher J. "Forecasting Foreign Exchange Volatility: Why Is Implied Volatility Biased and Inefficient? And Does It Matter?" Working Paper 2002-017D, Federal Reserve Bank of St. Louis, 2004a.
36. Neely, Christopher J. "Implied Volatility from Options on Gold Futures: Do Econometric Forecasts Add Value or Simply Paint the Lilly?" Working Paper 2003-018C, Federal Reserve Bank of St. Louis, 2004b.
37. Neely, Christopher J. "The Federal Reserve Responds to Crises: September 11th Was Not the First." Federal Reserve Bank of St. Louis Review, March/April 2004c, 86(2), pp. 27-42.
38. Pakko, Michael R. and Wheelock, David. "Monetary Policy and Financial Market Expectations: What Did They Know and When Did They Know It?" Federal Reserve Bank of St. Louis Review, July/August 1996, 78(4), pp. 19-32.
39. Pan, Jun. "The Jump-Risk Premia Implicit in Options: Evidence from an Integrated Time-Series Study." Journal of Financial Economics, 2002, 63, pp. 3-50.
40. Poteshman, Allen M. "Forecasting Future Volatility from Option Prices." Unpublished manuscript, Department of Finance, University of Illinois at Urbana-Champaign, 2000.
41. Romano, Marc and Touzi, Nizar. "Contingent Claims and Market Completeness in a Stochastic Volatility Model." Mathematical Finance, 1997, 7, pp. 399-410.
42. Rose, Andrew K. and Svensson, Lars E.O. "Expected and Predicted Realignments: The FF/DM Exchange Rate During the EMS." International Finance Discussion Paper Number 395, Board of Governors of the Federal Reserve System, April 1991.
43. Rose, Andrew K. and Svensson, Lars E.O. "European Exchange Rate Credibility Before the Fall." NBER Working Paper No. 4495, National Bureau of Economic Research, October 1993.
44. Shleifer, Andrei, and Vishny, Robert W. "The Limits of Arbitrage." Journal of Finance, 1997, 54, pp. 35-55.
45. Svensson, Lars E.O. "The Simplest Test of Target Zone Credibility." IMF Staff Papers, September 1991, pp. 655-65.
46. Szakmary, Andrew; Ors, Evren; Kim, Jin Kyoung and Davidson, Wallace N. III. "The Predictive Power of Implied Volatility: Evidence from 35 Futures Markets." Journal of Banking and Finance, 2003, 27, pp. 2151-75.
47. Wilmott, Paul; Howison, Sam and Dewynne, Jeff. The Mathematics of Financial Derivatives: A Student Introduction. Cambridge: Cambridge University Press, 1995.
48. Wilmott, Paul. Paul Wilmott on Quantitative Finance. Chichester, UK: John Wiley & Sons, 2000.