Information Content of Index Options in Predicting Indian Stock Market Volatility
14 Pages Posted: 9 Jan 2007
Date Written: November 6, 2006
This paper attempts to identify the changes in predictive power by addition of the incremental information contained in the Implied Volatility of the NSE Index options to GARCH and EGARCH models. This is done by adding the implied volatility as an exogenous variable in the GARCH and EGARCH models. The within-sample incremental information content is tested using the Likelihood ratio test. The paper further compares the incremental information in near expiry calls and far expiry calls.
Keywords: GARCH, EGARCH, implied volatility, information content of options
JEL Classification: N25
Suggested Citation: Suggested Citation