Volatility Forecasts for the RTS Stock Index: Option-Implied Volatility Versus Alternative Methods

20 Pages Posted: 30 Apr 2019

See all articles by Guglielmo Maria Caporale

Guglielmo Maria Caporale

Brunel University London - Department of Economics and Finance; London South Bank University; CESifo (Center for Economic Studies and Ifo Institute); German Institute for Economic Research (DIW Berlin)

Daria Teterkina

National Research University Higher School of Economics

Date Written: 2019

Abstract

This paper compares volatility forecasts for the RTS Index (the main index for the Russian stock market) generated by alternative models, specifically option-implied volatility forecasts based on the Black-Scholes model, ARCH/GARCH-type model forecasts, and forecasts combining those two using a mixing strategy based either on a simple average or a weighted average with the weights being determined according to two different criteria (either minimizing the errors or maximizing the information content). Various forecasting performance tests are carried out which suggest that both implied volatility and combination methods using a simple average outperform ARCH/GARCH-type models in terms of forecasting accuracy.

Keywords: option-implied volatility, ARCH-type models, mixed strategies

JEL Classification: C220, G120

Suggested Citation

Caporale, Guglielmo Maria and Teterkina, Daria, Volatility Forecasts for the RTS Stock Index: Option-Implied Volatility Versus Alternative Methods (2019). CESifo Working Paper No. 7612, Available at SSRN: https://ssrn.com/abstract=3378822 or http://dx.doi.org/10.2139/ssrn.3378822

Guglielmo Maria Caporale (Contact Author)

Brunel University London - Department of Economics and Finance ( email )

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London South Bank University ( email )

Centre for Monetary and Financial Economics
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CESifo (Center for Economic Studies and Ifo Institute)

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German Institute for Economic Research (DIW Berlin) ( email )

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Daria Teterkina

National Research University Higher School of Economics

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Moscow, Moscow 119017
Russia

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