The information content of implied volatility in agricultural commodity markets

✍ Scribed by Pierre Giot

• Publisher: John Wiley and Sons
• Year: 2003
• Tongue: English
• Weight: 112 KB
• Volume: 23
• Category: Article
• ISSN: 0270-7314
• DOI: 10.1002/fut.10069

✦ Synopsis

Abstract

In this article we compare the incremental information content of lagged implied volatility to GARCH models
of conditional volatility for a collection of agricultural commodities traded on the New York Board of Trade. We
also assess the relevance of the additional information provided by the implied volatility in a risk management
framework. It is first shown that past squared returns only marginally improve the information content provided
by the lagged implied volatility. Secondly, value‐at‐risk (VaR) models that rely
exclusively on lagged implied volatility perform as well as VaR models where the conditional variance is
modelled according to GARCH type processes. These results indicate that the implied volatility for options on
futures contracts in agricultural commodity markets provides relevant volatility information that can be used as
an input to VaR models. © 2003 Wiley Periodicals, Inc. Jrl Fut Mark 23:441–454, 2003