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    Currency option pricing and realised volatility

    151321_26829_Currency Option Pricing and realized volatility.pdf (187.2Kb)
    Access Status
    Open access
    Authors
    Manzur, Meher
    Hoque, A.
    Poitras, G.
    Date
    2010
    Type
    Journal Article
    
    Metadata
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    Citation
    Manzur, Meher and Hoque, Ariful and Poitras, Geoff. 2010. Currency option pricing and realised volatility. Banking and Finance Review. 2 (1): pp. 73-86.
    Source Title
    Banking and Finance Review
    ISSN
    1947-7945
    School
    School of Economics and Finance
    URI
    http://hdl.handle.net/20.500.11937/35929
    Collection
    • Curtin Research Publications
    Abstract

    Volatility is a key parameter in currency option pricing. This paper examines alternative specifications ofthe volatility input to the Black-Scholes option pricing procedure. The focus is the relative performance ofimplied, realized, and GARCH-based models as predictors of market volatility to forecast currency optionsprices. Using exchange-traded, daily and intra-daily data for three major European currencies, the results indicate that the realized volatility model tends to outperform the other two specifications, both in-sample and out-of-sample. This result is intuitively appealing and expected to facilitate resolution of other problems in risk management applications.

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