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Forecasting volatility in the Spanish option market

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  • Pilar Corredor
  • Rafael Santamaria

Abstract

The performance of several alternative forecasts for the Ibex-35 index options market data is compared and a test for market efficiency of the Spanish Option Market with respect to volatility forecasts provided. The forecasts include time series, implied volatilities and composite specifications using both parametric and nonparametric ways. It is found that the choice of the best model depends on the error measurement that depends on the ultimate purpose of the forecasting procedure. Also the results generated from an ex ante arbitrage strategy are not different from zero at conventional significance levels once the transaction costs are taken into account. This result supports the hypothesis of the market efficiency of the Spanish Option Market.

Suggested Citation

  • Pilar Corredor & Rafael Santamaria, 2004. "Forecasting volatility in the Spanish option market," Applied Financial Economics, Taylor & Francis Journals, vol. 14(1), pages 1-11.
  • Handle: RePEc:taf:apfiec:v:14:y:2004:i:1:p:1-11
    DOI: 10.1080/0960310042000164176
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    Cited by:

    1. Fantazzini, Dean & Shangina, Tamara, 2019. "The importance of being informed: forecasting market risk measures for the Russian RTS index future using online data and implied volatility over two decades," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 55, pages 5-31.
    2. Ewa Ratuszny, 2015. "Risk Modeling of Commodities using CAViaR Models, the Encompassing Method and the Combined Forecasts," Dynamic Econometric Models, Uniwersytet Mikolaja Kopernika, vol. 15, pages 129-156.
    3. José R. Aragonés & Carlos Blanco & Pablo García Estévez, 2007. "Neural network volatility forecasts," Intelligent Systems in Accounting, Finance and Management, John Wiley & Sons, Ltd., vol. 15(3‐4), pages 107-121, July.
    4. Charlotte S. Hansen & Bjorn E. Tuypens, 2007. "Spanning tests for options using principal components methods," Applied Financial Economics, Taylor & Francis Journals, vol. 17(9), pages 739-746.
    5. Eui Jung Chang & Benjamin Miranda Tabak, 2007. "Are implied volatilities more informative? The Brazilian real exchange rate case," Applied Financial Economics, Taylor & Francis Journals, vol. 17(7), pages 569-576.
    6. M. Brunetti & C. Torricelli, 2007. "The internal and cross market efficiency in index option markets: an investigation of the Italian market," Applied Financial Economics, Taylor & Francis Journals, vol. 17(1), pages 25-33.
    7. Natividad Blasco & Pilar Corredor & Sandra Ferreruela, 2012. "Does herding affect volatility? Implications for the Spanish stock market," Quantitative Finance, Taylor & Francis Journals, vol. 12(2), pages 311-327, July.

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