Intermediate volatility forecasts using implied forward volatility: The performance of selected agricultural commodity options

Thorsten M. Egelkraut, Philip Garcia

Research output: Contribution to journalArticlepeer-review

Abstract

Options with different maturities can be used to generate an implied forward volatility, a volatility forecast for non-overlapping future time intervals. Using five commodities with varying characteristics, we find that the implied forward volatility dominates forecasts based on historical volatility information, but that the predictive accuracy is affected by the commodity's characteristics. Unbiased and efficient corn and soybeans market forecasts are attributable to the well-established volatility during crucial growing periods. For soybean meal, wheat, and hogs, volatility is less predictable and investors appear to demand a risk premium for bearing volatility risk.

Original languageEnglish (US)
Pages (from-to)508-528
Number of pages21
JournalJournal of Agricultural and Resource Economics
Volume31
Issue number3
StatePublished - Dec 1 2006

Keywords

  • Agricultural commodity
  • Efficiency
  • Forecasts
  • Implied forward volatility
  • Options

ASJC Scopus subject areas

  • Animal Science and Zoology
  • Agronomy and Crop Science
  • Economics and Econometrics

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