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Tracking Brazilian Exchange Rate Volatility

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  • Benjamin Miranda Tabak
  • Sandro Canesso de Andrade
  • Eui Jung Chang

Abstract

This paper examines the relation between dollar-real exchange rate volatility implied in option prices and subsequent realized volatility. It investigates whether implied volatilities contain information about volatility over the remaining life of the option which is not present in past returns. Using GMM estimation consistent with telescoping observations evidence suggests that implied volatilities give superior forecasts of realized volatility if compared to GARCH(p,q), and Moving Average predictors, and that econometric models forecasts do not provide significant incremental information to that contained in implied volatilities.

Suggested Citation

  • Benjamin Miranda Tabak & Sandro Canesso de Andrade & Eui Jung Chang, 2004. "Tracking Brazilian Exchange Rate Volatility," Econometric Society 2004 Far Eastern Meetings 487, Econometric Society.
    • Handle: RePEc:ecm:feam04:487
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    References listed on IDEAS

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    6. Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-654, May-June.
    7. Blair, Bevan J. & Poon, Ser-Huang & Taylor, Stephen J., 2001. "Forecasting S&P 100 volatility: the incremental information content of implied volatilities and high-frequency index returns," Journal of Econometrics, Elsevier, vol. 105(1), pages 5-26, November.
    8. Campa, Jose Manuel & Chang, P. H. Kevin, 1998. "The forecasting ability of correlations implied in foreign exchange options," Journal of International Money and Finance, Elsevier, vol. 17(6), pages 855-880, December.
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    Cited by:

    1. Osei-Fosu & Baba Insah Anthony & Ofori-Boateng Kenneth, 2015. "Real Exchange Rate Volatility and Foreign Direct Investment Inflows: The Ghanaian Experience," International Journal of Empirical Finance, Research Academy of Social Sciences, vol. 4(6), pages 336-344.

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    More about this item

    Keywords

    implied volatility; telescoping observations; GMM;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods

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