The Information Content of Over-the-Counter Currency Options

2004 ◽  
Author(s):  
Peter Christoffersen ◽  
Stefano Mazzotta
Keyword(s):  
Information Content ◽  
Currency Options ◽  
Over The Counter

scholarly journals Predictability of OTC Option Volatility for Future Stock Volatility

2020 ◽  
Vol 12 (12) ◽  
pp. 5200
Author(s):  
Jungmu Kim ◽  
Yuen Jung Park
Keyword(s):  
Information Content ◽  
Unbiased Estimator ◽  
Implied Volatility ◽  
Realized Volatility ◽  
Stock Index ◽  
Options Market ◽  
Over The Counter ◽  
Index Options ◽  
Stock Volatility ◽  
Future Realized Volatility

This study explores the information content of the implied volatility inferred from stock index options in the over-the-counter (OTC) market, which has rarely been studied in the literature. Using OTC calls, puts, and straddles on the KOSPI 200 index, we find that implied volatility generally outperforms historical volatility in predicting future realized volatility, although it is not an unbiased estimator. The results are more apparent for options with shorter maturity. However, while implied volatility has strong predictability during normal periods, historical volatility is superior to implied volatility during a period of crisis due to the liquidity contraction of the OTC options market. This finding suggests that the OTC options market can play a role in conveying important information to predict future volatility.

Information Content of Implied Volatilities in KRW/USD Currency Option Markets

2011 ◽  
Vol 19 (2) ◽  
pp. 207-232
Author(s):  
Byung Jin Kang
Keyword(s):  
Information Content ◽  
Global Financial Crisis ◽  
Dynamic Properties ◽  
Explanatory Power ◽  
Currency Options ◽  
Option Markets ◽  
Currency Option ◽  
Sample Data ◽  
Seeking Behavior ◽  
The Difference

This paper investigate the information content of implied volatilities derived from KRW/USD OTC currency options. First, we examined the explanatory power of implied volatilities in forecasting future realized volatilities of the spot exchange rates. Next, we examined the dynamic properties of volatility spreads, the difference between implied volatilities and realized volatilities, observed in KRW/USD currency option markets. Using the sample data from January 2006 through March 2010, we first find that even though the implied volatilities have a little explanatory power in forecasting future realized volatilities, they don't improve the information content of simple historical volatilities at all. Second, this paper finds that during the period before global financial crisis in 2008, the implied volatilities are consistently lower than the realized volatilities. This suggests that we cannot exclude the possibility of risk seeking behavior of the investors in KRW/USD OTC currency option markets at that time. Finally, from the comparative analysis with KOSPI 200 index options for the same sample period, we confirmed that our empirical results are uniquely observed only in KRW/USD OTC currency option markets.

The Volatility Risk Premium Embedded in Currency Options

2005 ◽  
Vol 40 (4) ◽  
pp. 803-832 ◽  
Author(s):  
Buen Sin Low ◽  
Shaojun Zhang
Keyword(s):  
Risk Premium ◽  
Parametric Approach ◽  
Large Database ◽  
Currency Options ◽  
Over The Counter ◽  
Volatility Risk ◽  
Currency Option ◽  
Volatility Risk Premium ◽  
Japanese Yen ◽  
Option Market

AbstractThis study employs a non-parametric approach to investigate the volatility risk premium in the over-the-counter currency option market. Using a large database of daily delta-neutral straddle quotes in four major currencies—the British pound, the euro, the Japanese yen, and the Swiss franc—we find that volatility risk is priced in all four currencies across different option maturities. We find that the volatility risk premium is negative, with the premium decreasing in maturity. Finally, we also find evidence that jump risk may be priced in the currency option market.

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